Briefcase on Corporation Law III Jilin Electronic Group Company v East Group Company AOA v Promoters Agreement

Establishment of the company (issue biz license) Pre-incorporation Period Duration of operation of the Company Promoters Agreement and Contract Law Prevail AOA and Company Law prevail Status: promotersStatus: shareholders Contractual Relationship (parties of the Contract shall agree on every party ’ s rights, obligations and liabilities) Relationship governed by Company Law (shareholders ’ rights, obligations and liabilities shall comply with the Company Law) Contractual Dispute Dispute concerning shareholders or Company Articles of Association v. Promoters Agreement

Case Summary Jilin Electronic Group Company (hereinafter referred to as “Jilin Company”) together with East Group Company, Longda Real Estate Development Company and Jiahe Trading Company signed a Promoters Agreement for the purpose of establishing Haitong Hi-tech Company. Jilin Electronic Group Company Longda Real Estate Company Jiahe Trading Company East Group Company Haitong HI-tech Company

Case Summary All the Parties hereby agreed on the following clauses: The newly established company is a stock company. The form of investment and the ratio of capital contribution: (i) Jilin Electronic shall make capital contribution in the form of equities and land-use right, accounting for 51% of the registered capital. (ii) East Group Company shall make capital contribution in the form of equities and ownership of machineries and equipments, accounting for 40% of the registered capital. (iii) The other two companies contribute 9% of the registered capital.

Case Summary However, East Group Company did not transfer the equity to the newly established hi-tech company. Jilin Company sued group Company. Jilin Company claimed that East Group Company did not fully make capital contribution which impacted on the daily sound operation of the company and bring about huge losses to Jinlin Company. Jilin Company asked the court to terminate the Promoters Agreement.

Case Summary East Group Company defended that The hi-tech company has already been set up. The Promoters Agreement has been performed as agreed upon. Where the Promoters Agreement has been performed as agreed upon, this agreement has been terminated. The court shall not enforce Jilin Company’s claim.

Questions Upon the establishment of the Company, which agreement shall bind on the shareholders of the new company, the Promoters Agreement or the Articles of Association of the Company? Shall the court enforce Jilin Company’s claim? What advice would you like to give to help Jilin Company seek remedy?

AOA v Promoters Agreement Promoters Agreement Company limited by shares: mandatory \ compulsory (essential\necessary) Limited Liability Company: (i) Chinese-Foreign Company or Wholly Foreign-owned Company: mandatory \ compulsory (ii) Other Limited Liability Company: optional AOA All companies: mandatory\compulsory

Establishment of the company (issue biz license) Pre-incorporation Period Duration of operation of the Company Promoters Agreement and Contract Law Prevail AOA and Company Law prevail Status: promotersStatus: shareholders Contractual Relationship (parties of the Contract shall agree on every party ’ s rights, obligations and liabilities) Relationship governed by Company Law (shareholders ’ rights, obligations and liabilities shall comply with the Company Law) Contractual Dispute Dispute concerning shareholders or Company Articles of Association v. Promoters Agreement