5.3.2.3 Prolongation of operating terms

In Article 75, when the operating term for the business term as prescribed in the articles of association expires or there are other reasons for dissolution as stipulated in the articles of association, the shareholders' meeting prolongs the company's existence by adopting a resolution amending the relevant article in the articles of association, dissenting shareholders can ask for an exit. This situation is considered a fundamental change to the company and affects shareholders' fundamental expectations of their investment, although it cannot be found in the appraisal remedy in the US. Here, the notion is underlined that even though the fundament principles and purposes of the appraisal remedy are the same, specific provisions can vary with different legal backgrounds and practice.

In Chinese company law, prolongation of the operation term is the only occasion which results in appraisal rights in case of amendment of the articles of association. According to the RMBCA, the law would be deemed as arbitrary and unfriendly to the corporation if it allowed appraisal with respect to all amendments.1 The RMBCA therefore limits the remedy to reverse stock splits in case of amendments to the articles, but it allows the corporation to expand the scope of triggers by private ordering; shareholders can decide on the kinds of situations they consider appropriate for granting appraisal rights. The ALI Principles also endorse private ordering and recommend that states consider it in their future corporate law reforms.2 It is, in fact, a worldwide trend to permit private ordering to a further extent in corporate laws. I see no reason why appraisal rights should be an exception but, of course, whatever the occasion for an exit may be, the precondition is that the interests of creditors should not be prejudiced.3 Chinese company law should allow private ordering in appraisal rights.