Equity transfer refers to the activity that the Company's shareholders will transfer their own shares to others in accordance with the law, so that others will become shareholders of civil legal act.
I. China Equity Transfer Definition
Equity transfer is a frequent way for shareholders to exercise their options. According to the Chinese "Company Law", Shareholders are entitled to transfer their entire investment or part of their investment to others through legal ways. Equity Transfer Agreement refers to the agreement reached by the transferor for the purpose of reaching the delivery options on and receiving the intended capital.
II. Advantages of Equity Transfer
1. Reduced cost of acquisition;
2. Achieve the purpose of M & A.
III. China Equity Transfer Procedures
Six procedures are included:
1. Negotiation. (This step is to find trading partners, the subject of trade, price and other basic content to reach a preliminary intention)
2. Reach an agreement of over a half shareholders.
3. Other shareholders give up their rights of first refusal. (This step can be solved together with the second step)
4. Sign an equity transfer agreement.
5. Record the changes to the company equity transfer
6. Apply to the industry and commerce registration department for equity transfer
IV. Materials needed for China Equity Transfer
To ensure the success of China company equity transfer, Limited Liability Companies should prepare such main documents as below:
1. Resolutions from all shareholders;
2. Agreements on this equity transfer;
3. Revised Articles of Association;
4. One whole set of statutory documents from original and new shareholders.
V. The Pricing Principles of Equity Transfer
The price of equity transfer is not equal to the registered capital or the actual expense It is composed of both sides (the transferor, transferee) according to the actual investment, registered capital, the company's assets, the future profitability, intangible assets and other factors determined in consultation The price can be more or less than the registered capital, the capital and the assets of the company. The company has the right to require shareholders without enough capital to complement the required capital. Shareholders with enough capital can also enjoy the right.
VI. Tax Treatment of Equity Transfer
For China equity transfer, there are some tax issues you should pay attention to.
1. Income tax is concerned when it comes to equity transfer for a China company. Generally, it could be enterprise income tax or individual income tax, depending on which party is concerned for this transfer.
2. Stamp duty will be concerned as well. Even if you do not pay it at first of this transfer, you would be required to pay it when you apply for the company deregistration.
Contact Us
If you have further queries, don’t hesitate to contact Tannet anytime, anywhere by simply visiting Tannet’s website english.tannet-group.com, or calling Hong Kong hotline at 852-27826888 or China hotline at 86-755-82143422, or emailing to tannet-solution@hotmail.com.
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