Shareholders Preemptive rights Suzie

Facts  Company A   Company B Company C  （ 55% ） （ 45% ）  Company D

Facts  Company B and C are shareholders of Company A （ LLC ）  B intended to transfer its 55% equity interest to Company D

Facts  B notified the proposed transfer conditions to C for two times for the purpose of B’s preemptive rights  C expressed its intention to exercise preemptive right at the first notification but remain silent as regard to the second one

Facts  B and D entered into agreement stating that B will transfer 55% equity interest to D and intends to perform the contract  C suit against B before the performance of the contract for exercising preemptive right towards B’s 55% equity interest

Question  Does C waive the preemptive right?  Is the agreement between B and D valid?  Who is entitled to the 55% equity interest?

Analysis  C has made it clear that it intended to exercise preemptive right in the first reply to B’s notification  “Offer and Acceptance”  An equity interest transfer agreement was entered into between B and C since the day when C expressed its intention to exercise preemptive right

Analysis  The agreement between B and D is also valid but it cannot be performed because Art 72 just gives “performance priority” to agreement between B and C  Two agreements are both valid according to contract law  Only one agreement can actually be performed according to corporation law

Conclusion  Between B and C  B should transfer the 55% equity interest to C  Between B and D  B should bear default liabilities to D  D also had certain duty of care when signing the contract because it can reasonably expect there maybe preemptive right on the 55% equity interest.  The liabilities will be at the discretion according to both parties’ faults

Summary  There is an implied agreement between transferring shareholders and the shareholders who enjoy preemptive right when the latter said yes to exercise it.  The contract between transferring shareholders and outsiders are valid regardless of the agreement between transferor and inside shareholder but it can not be performed because the performances are in conflicts and Art 72 gives priority to inside contracts.