Viewpoint... Practical analysis of the determination of the subject of the exercise of shareholders' right to know.

According to the the People's Republic of China Company Law and the (IV) of the Supreme People's Court on Several Issues Concerning the Application of the the People's Republic of China Company Law, the qualified subject to exercise the shareholders' right to know is the shareholders of the company. However, in judicial practice, it is often controversial whether the plaintiff has the status of a shareholder who enjoys the right to know. This paper will combine the current law, the provisions of judicial interpretation and the judicial cases of disputes over shareholders' right to know to analyze the determination of the subject of the exercise of shareholders' right to know.

Article 33 Shareholders shall have the right to consult and copy the articles of association, the minutes of the shareholders' meeting, the resolutions of the meetings of the board of directors, the resolutions of the meetings of the board of supervisors and the financial and accounting reports.

Shareholders may request access to the accounting books of the company. If a shareholder requests to consult the company's accounting books, he shall submit a written request to the company stating the purpose. If the company has reasonable grounds to believe that the shareholders' access to the accounting books has an improper purpose and may damage the legitimate interests of the company, it may refuse to provide access, and shall reply to the shareholders in writing within 15 days from the date of the written request of the shareholders and explain the reasons. If the company refuses to provide inspection, the shareholder may request the people's court to require the company to provide inspection.

Article 97 Shareholders shall have the right to consult the articles of association, the register of shareholders, the stubs of corporate bonds, the minutes of the general meeting of shareholders, the resolutions of the meetings of the board of directors, the resolutions of the meetings of the board of supervisors and the financial and accounting reports, and to make suggestions or inquiries about the operation of the company.

Article 7 Where a shareholder, in accordance with the provisions of Articles 33 and 97 of the Company Law or the Articles of Association of the Company, sues for the inspection or copying of specific documents and materials of the Company, the people's court shall accept them in accordance with the law.

If the company has evidence to prove that the plaintiff specified in the preceding paragraph does not have the qualification of a shareholder of the company at the time of the lawsuit, the people's court shall reject the lawsuit, but the plaintiff has preliminary evidence to prove that its legitimate rights and interests have been damaged during the shareholding period, and requests to consult or copy the company's specific documents and materials during the shareholding period in accordance with the law.

The general principle of the determination of the subject of the exercise of the shareholders' right to know is to qualify as a shareholder of the company. The court will often determine whether the plaintiff has the qualification of a shareholder based on the external registration information of the company, the articles of association, the register of shareholders, the certificate of capital contribution and other documents that can reflect the identity of the shareholder. Therefore, shareholders should submit shareholder qualification documents when filing a shareholder's right to know lawsuit.

[Case 1] Dispute over Shareholders' Right to Know between Applicant Yangzhou Xicheng Real Estate Development Co., Ltd. and Respondent Rongwei International Development Co., Ltd. (Case No.:(2019) Supreme Law Minshen No. 5859, Trial Court: Supreme People's Court)

The Court held that:According to the industrial and commercial registration information, Rongwei Company holds the equity of Xicheng Company. Although Xicheng Company advocates that there is a "Supplementary Agreement" that can prove that Roewe Company has transferred its equity, it has not gone through the corresponding industrial and commercial change registration, nor has it gone through the procedures for foreign investment approval. Rongwei company in the case of the first instance cross-examination of the "supplementary agreement" is not recognized. Combined with the foregoing analysis, Xicheng did not provide sufficient evidence to overturn the contents of the industrial and commercial registration data. According to the second paragraph of Article 32 of the the People's Republic of China Company Law, the original trial court ruled that Roewe Company, as a shareholder of Xicheng Company recorded in the register of shareholders, has the right to exercise the shareholders' right to know to Xicheng Company.

[Case 2] Retrial Dispute between Applicant Lanzhou Huamei Trading Co., Ltd. and Respondent Zhou Wanyin's Shareholders' Right to Know (Case No.:(2019) Gan Minshen No. 82, Trial Court: Gansu Higher People's Court)

The Court held that:A certificate of capital contribution is, in nature, a certificate of real right, a certificate of proof that a shareholder holds shares or capital contribution. In this case, on July 15, 2014, the "Certificate of Shareholder's Capital Contribution" sealed by Huamei Trading Company and signed by the legal representative Jiao Huaizhou stated: "The company's shareholder Zhou Wanyin paid the company on January 15, 2013. The capital contribution is 400,000 yuan (the above invested capital is my own capital, and the capital can be used to bear the civil liability of the enterprise during its use). Such shareholder shall, from the date of issuance of this capital contribution certificate, enjoy the rights of shareholders as stipulated in the Articles of Association of the Company." On January 5, 2015, the industrial and commercial change registration was made, so it was not improper for Zhou Wanyin to enjoy the shareholders' right to know according to the original judgment. Huamei Trading Company's claim that Zhou Wanyin's transfer of shares did not comply with the provisions of the law and the Articles of Association of the Company and Zhou Wanyin's fraudulent registration of industrial and commercial changes cannot be countered against Zhou Wanyin's "Certificate of Shareholder Capital Contribution" and industrial and commercial registration.

Prior to the implementation of the (IV) of the Provisions of the Supreme People's Court on Certain Issues Concerning the Application of the the People's Republic of China Company Law, most courts would rule to dismiss the action of the withdrawing/transferring shareholder on the grounds that the withdrawing/transferring shareholder was not qualified as a shareholder. Article 7 of the (IV) of the Supreme People's Court on Several Issues Concerning the Application of the the People's Republic of China Company Law adds the limited right to know of the shareholders who have withdrawn shares/transferred shares, that is, "if the company has evidence to prove that the plaintiff specified in the preceding paragraph does not have the qualification of a company shareholder at the time of prosecution, the people's court shall reject the prosecution, but the plaintiff has preliminary evidence to prove that his legitimate rights and interests have been damaged during the period of shareholding, except for requesting legal access to or copying of company-specific documents during the period of its shareholding". that is to say,In order to exercise the shareholder's right to know, the withdrawing shareholder/transferring shareholder needs to have preliminary evidence that his or her legitimate rights and interests have been harmed during the holding period. In judicial practice, most courts have held that the "legitimate rights and interests" here do not refer to arbitrary shareholders' rights, but mainly to property rights and interests that affect the distribution of profits or the distribution of surplus property, and that if only non-property rights and interests are harmed, it may still be impossible to exercise the right to know.

[Case 1] Dispute between Appellant Shanghai Zhongshan Car Rental Company and Appellee Xue Hong Shareholders' Right to Know (Case No.:(2019) Hu 02 Min Zhong No. 1660, Trial Court: Shanghai No.2 Intermediate People's Court)

The Court held that:The question of whether the original shareholders of a joint-stock cooperative enterprise have a limited right to know. The articles of association of Zhongshan Automobile Company do not stipulate the content of shareholders' right to know. Considering the commercial organizational nature of the shareholder cooperative enterprise, which has a certain degree of similarity with the limited liability company, and Zhongshan Automobile Company also agreed to apply the Company Law and its judicial interpretation in the appeal, the provisions of the Company Law and the relevant judicial interpretation can be referred to in this case. The second paragraph of Article 7 of the "Interpretation IV of the Company Law" stipulates: "If the company has evidence to prove that the plaintiff specified in the preceding paragraph does not have the qualifications of a company shareholder at the time of the lawsuit, the people's court shall reject the lawsuit, but the plaintiff has preliminary evidence to prove that during the shareholding period Its legitimate rights and interests have been damaged, except for requesting to consult or copy the company's specific documents during the shareholding period in accordance with the law." According to this article, although Xue Hong has lost the shareholder qualification of Zhongshan Automobile Company, because Zhongshan Automobile Company has never distributed profits during Xue Hong's shareholding period and has not yet settled the refund of Xue Hong's withdrawal amount, it meets the condition that "the plaintiff has preliminary evidence to prove that its legitimate rights and interests were damaged during the shareholding period". Therefore, the court believes that Xue Hong, as the original shareholder of Zhongshan Automobile Company, enjoys limited shareholders' right to know.

[Case 2] Dispute over Shareholders' Right to Know between Applicant Shandong Rongsheng Investment Co., Ltd. and Respondent Qingdao Shenhua Real Estate Co., Ltd. (Case No.:(2019) Lu Minshen No. 3159, Trial Court: Shandong Higher People's Court)

The Court held that:The second paragraph of Article 7 of the (IV) of the Supreme People's Court on Several Issues Concerning the Application of the the People's Republic of China Company Law stipulates that if the company has evidence to prove that the plaintiff specified in the preceding paragraph does not have the qualifications of a company shareholder at the time of the lawsuit, the people's court shall reject the lawsuit. However, the plaintiff has preliminary evidence to prove that his legal rights and interests were damaged during the shareholding period, except for requesting to consult or copy the company's specific documents during the shareholding period. In accordance with the above provisions, Rongsheng Company shall provide preliminary evidence to prove that Shenhua Company harms its interests during the period of its shareholding. According to the facts ascertained in the original trial, both parties agreed that Beijing Yuanzhong Real Estate Development Co., Ltd., the shareholder of Shenhua Company, was responsible for the operation of Shenhua Company. Therefore, the loan purpose and house operation mode of Shenhua Company advocated by Rongsheng Company belong to the company autonomy category of daily operation of Shenhua Company. And in the resolution of the shareholders' meeting held by Shenhua Company on February 28, 2018, the follow-up operation of the house developed by Shenhua Company and the company's capital status were also resolved as the topics of the meeting. It is also reflected in the letter of intent for equity transfer on June 27, 2013. Rongsheng Company did not provide preliminary evidence to prove the fact that its legitimate rights and interests were damaged during the period of its shareholding, and the original ruling rejected the facts and applied the law.

A successor shareholder is a shareholder who acquires the qualification of a shareholder by way of transfer of equity, acceptance of gifts, inheritance of equity, etc. Based on the lack of trust of the original shareholders in the successor shareholders, the continuing shareholders to obtain shareholder qualification before the operating level may have defects and other reasons, the refusal of the successor shareholders to access the information before they become shareholders of the company often occurs, which leads to the shareholders' right to know litigation.In this regard, there are mainly two different views in judicial practice: the first view is that the successor shareholder cannot exercise the shareholder's right to know about the information before he becomes a shareholder; the second view is that the successor shareholder has the shareholder's right to know about the information before he becomes a shareholder, and the current mainstream judicial view is the second view,The main reasons are as follows:

1. Existing laws and judicial interpretations do not prohibit shareholders from accessing the company information before they became shareholders. Once you become a shareholder of the company, you have exactly the same rights as other shareholders and should not be treated differently or limited by the time you become a shareholder of the company.

2. The operation of the company is a whole, dynamic and continuous process. The business decisions made by the company are closely related to the transactions and decisions that have taken place before. When shareholders exercise their voting rights on the company, they also take the understanding of the overall situation of the company as a prerequisite.

3. Shareholders shall be liable for the debts of the Company to the extent of their capital contributions, including the debts incurred by the Company prior to their accession, and from the point of view of the consistency of rights and obligations, shareholders shall also have the right to consult and copy the relevant documents of the Company prior to their accession.

[Case 1] Dispute between Appellant Beijing Forty People Forum Consulting Co., Ltd. and Appellee Zhang Jialin Shareholders' Right to Know (Case No.:(2022) Beijing 02 Minzong No. 1675, Trial Court: Beijing No.2 Intermediate People's Court)

The Court held that:First of all, Article 33 of the Company Law clearly stipulates that shareholders of a limited liability company have the right to consult and copy the articles of association, minutes of shareholders' meetings and other documents and to request access to the company's accounting books, and does not prohibit shareholders from consulting the relevant documents and materials before they become shareholders. Secondly, the legislation of shareholders' right to know is intended to allow shareholders to fully grasp the company's information, management activities and risk status, so as to supervise the company's management and protect the legitimate rights and interests of shareholders. The company's operation is a whole, dynamic and continuous process, the company's business decisions are closely related to the previous transactions and decisions, shareholders in the exercise of voting rights in the company is also based on the understanding of the overall situation of the company. In addition, the shareholders shall be liable for the debts of the company to the extent of their capital contribution, including the debts incurred by the company before the shareholders joined, so from the point of view of the consistency of rights and obligations, the shareholders shall also have the right to consult and copy the relevant documents of the company before their accession. Therefore, it is not improper for the court of first instance to support Zhang Jialin to consult and copy the relevant documents of the company before he became a shareholder. The Forty-Person Forum's claim that Zhang Jialin's exercise of the shareholders' right to know should be limited to his appeal after he became a shareholder has no factual and legal basis, and the Court does not support it.

[Case 2] Plaintiff Wang Yanfeng and Defendant Changzhou Sanli Precision Machinery Co., Ltd. Shareholder's Right to Know Dispute (Case No.:(2012) Zhong Shang Chu Zi No. 555, Trial Court: Zhonglou District People's Court of Changzhou City, Jiangsu Province)

The Court held that:Regarding the defendant's argument that the plaintiff only obtained the shareholder qualification in 2008, so he can only consult the accounting books after 2008, the court held that the shareholders' right to know is an inherent legal right of the shareholders of the company. Once they become shareholders of the company, they enjoy exactly the same rights as other shareholders, and should not be treated differently or restricted according to the time they become shareholders of the company. Therefore, the defendant's argument has no legal basis and will not be accepted. As to whether the plaintiff's request for access to the accounting books two years ago from the date of prosecution has exceeded the statute of limitations, in this case, the statute of limitations is essentially a question of the scope of access. The court held that the company's operation is a process of overall continuity, the company's situation today may be the result of previous operations, if the absolute identity of the right, shareholders may not access to the relevant information before the acquisition of shareholder identity, will inevitably lead to incomplete protection of shareholders' rights and interests. After a shareholder joins the company and becomes a shareholder, the understanding and mastery of the company's operating conditions and financial information before he becomes a shareholder should fall within the scope of his proper exercise of the shareholder's right to know, so in this case the plaintiff has the right to request access to the company's accounting books before he joined the company.

Existing laws and judicial interpretations do not recognize that anonymous shareholders have direct shareholder rights over the company.In principle, the hidden shareholder cannot directly exercise the shareholder's right to know, its rights need to be exercised indirectly through the prominent shareholder, most courts will rule to dismiss the anonymous shareholder's lawsuit on the grounds that the anonymous shareholder is not qualified to bring the shareholder's right to know before the name is revealed. However, in conjunction with judicial cases, the court may also support its right to know request if the anonymous shareholder can prove that the company and other shareholders recognize its status as an anonymous shareholder, that the anonymous shareholder has exercised the rights of shareholders, and that the exercise of the rights of the anonymous shareholder is legitimate.

[Case 1] Dispute between Plaintiff Liu Kewei and Defendant Shanxi Fengneng Refractory Co., Ltd., Third Person Wu Zhaowei and Huo Kaiyang Shareholders' Right to Know (Case No.:(2021) Jin 0781 Min Chu No. 1827, Trial Court: Jiexiu Municipal People's Court of Shanxi Province)

The Court held that:Article 32, paragraph 2, of the the People's Republic of China Company Law states: "Shareholders recorded in the register of shareholders may claim to exercise their rights as shareholders in accordance with the register of shareholders." The Supreme People's Court on the application<中华人民共和国公司法>Article 24, paragraph 3, of the (III) on Certain Issues stipulates: "The people's court shall not support the actual investor's request to the company to change its shareholders, issue a certificate of capital contribution, record it in the register of shareholders, record it in the articles of association of the company and register it with the company registration authority without the consent of more than half of the other shareholders of the company". In this case, the parties have no objection to the identity of Liu Kewei as the actual funder of Shanxi Fengneng Company and the identity of Huo Kaiyang as the name funder of Shanxi Fengneng Company. According to the aforementioned legal provisions, the shareholders' right to know is the right of the shareholders of the company to know the information of the company, which is an independent right enjoyed by the shareholders and does not depend on the rights of other shareholders. The actual contributor is not a shareholder in the sense of corporate law, and in a dispute involving the right to know of an anonymous shareholder, the actual contributor or the anonymous shareholder is not qualified to bring a lawsuit against the shareholder's right to know until the name is revealed. To sum up, the subject of the plaintiff in this case is not qualified.

[Case 2] Dispute between Appellant Yimen Yezhifeng Mining Co., Ltd. and Appellee Yang Wansheng Shareholders' Right to Know (Case No.:(2020) Yun 04 Min Zhong No. 604, Trial Court: Yuxi Intermediate People's Court of Yunnan Province)

The Court held that:The focus of the dispute in the second instance of this case is whether Yang Wansheng, as an anonymous shareholder, has the right to know. In response to the focus of the dispute in this case, the Court will discuss the following aspects: First, shareholders enjoy the right to asset income and participate in decision-making in accordance with the law. The second is whether Yang Wansheng's identity as a dormant shareholder is recognized by the company's shareholders. Third, whether the exercise of the shareholder's right to know by the dormant shareholders has a "legitimate purpose". Fourth, whether the exercise of the shareholder's right to know by the dormant shareholders shakes the company's "human nature". In this case, Yang Wansheng, as an anonymous shareholder of Yezhifeng Company, accounts for 16.5 of the shares. The shares are held by shareholder Huang Xiaolin. Yang Wansheng is the actual investor of Yezhifeng Company. Registered shareholders Huang Xiaolin and Gao Fu 'an also know that Yang Wansheng is the actual investor of Yezhifeng Company and participates in the company's foreign business exchanges. The above facts are confirmed by the Supreme People's Court (2016) Supreme Famin No. 218 civil judgment, both parties have no objection to the above facts in this case 1. the second instance litigation. The company appealed that the exercise of shareholders' right to know should be the right of registered shareholders, and non-registered shareholders have no right to exercise. After review, although the "the People's Republic of China Company Law" stipulates that the names of shareholders should be registered, it does not specify that only registration can obtain the identity of shareholders and equity shares. As the actual investor of Yezhifeng Company, Yang Wansheng owns 16.5 percent of the shares of Yezhifeng Company. Under the circumstances that his legal ways as a prominent shareholder are still unsuccessful and Yezhifeng Company is not actually operating, Yang Wansheng's request to consult, copy relevant materials and consult accounting books is to ensure that his legitimate rights and interests as an anonymous shareholder are not infringed by Yezhifeng Company, which is legitimate, it did not harm the legitimate interests of the company and shake the company's "human nature". Yang Wansheng's request to obtain information about the company's interest in Yezhifeng through litigation is legitimate, and this court supports it.

Article 16 of the (III) of the Supreme People's Court on Several Issues Concerning the Application of the the People's Republic of China Company Law stipulates that "if a shareholder fails to perform or fully perform his capital contribution obligations or evades capital contribution, the company shall, in accordance with the articles of association or the resolution of the shareholders' meeting, make corresponding reasonable restrictions on the rights of shareholders, such as the right to claim profit distribution, the right to subscribe for new shares, and the right to claim the distribution of surplus property. The people's property shall not support the shareholder's", this provision provides a legal basis for reasonable restrictions on the rights of shareholders of defective capital contributions, but it does not list the shareholders' right to know, but also includes "etc.", resulting in different decisions in judicial practice on whether shareholders of defective capital contributions have the right to know, there are mainly two different views:The first point of view, the shareholder's capital contribution defects, will make the shareholder's qualification uncertainty, can not exercise the shareholder's right to know, the second point of view, the company without legal procedures to remove the capital contribution defects shareholders should not limit the shareholders' right to know, the current mainstream judicial view for the second view, the main reasons are as follows:

1. Article 33 of the the People's Republic of China Company Law does not restrict the right to know of shareholders with defective capital contributions, and shareholders with defective capital contributions shall still be qualified as shareholders before the shareholders' meeting makes a resolution to remove their names.

2. According to Article 16 of the "(III) of the Supreme People's Court on Several Issues Concerning the Application of the the People's Republic of China Company Law", the shareholders' rights that the company can restrict to shareholders with defective capital contributions mainly refer to the right to request profit distribution, the right to pre-emptive subscription of new shares, The right to request the distribution of surplus property and other rights for the direct purpose of property interests do not restrict the shareholders' right to know.

3. The exercise of the shareholders' right to know is not determined by the proportion of capital contribution, and the right to know should not be deprived in principle until the shareholders are deprived of their qualifications through legal procedures.

[Case 1] Retrial Applicant Xinjiang Xinhuirong Real Estate Development Co., Ltd. and Respondent Huang Xuanqian Shareholder's Right to Know Dispute (Case No.:(2019) Xinmin Shen No. 1549, Trial Court: Xinjiang Uygur Autonomous Region Higher People's Court)

The Court held that:Although Xinhuirong Company denies its shareholder qualification by Huang Xuanqian's failure to fulfill its capital contribution obligations, even if Huang Xuanqian's capital contribution is defective, it can still exercise the corresponding shareholder rights in accordance with the provisions of the Company Law or the articles of association before it loses its shareholder status. For its capital contribution defects, it should bear the corresponding liability for breach of contract or other responsibilities, but its shareholder qualification cannot be denied. The People's Court of First Instance held that it was not improper for Huang Xuanqian, as a shareholder of Xinhuirong Company recorded in the register of shareholders, to exercise the shareholders' right to know to Xinhuirong Company.

[Case 2] Dispute between Plaintiff Chen Shaolin and Defendant Zhongshang Tianyuan Biotechnology Co., Ltd. Shareholders' Right to Know (Case No.:(2018) Beijing 04 Minchu No. 597, Trial Court: Beijing No.4 Intermediate People's Court)

The Court held that:Article 17 of the (III) of the Supreme People's Court on Several Issues Concerning the Application of the the People's Republic of China Company Law stipulates that if a shareholder fails to perform or fully perform his capital contribution obligations or evades capital contribution, the company shall, in accordance with the articles of association or the resolution of the shareholders' meeting, make corresponding reasonable restrictions on the rights of shareholders, such as the right to request profit distribution, the right to subscribe for new shares, and the right to request the distribution of surplus property. The provisions of this article are restrictions on the rights of shareholders of defective capital contributions and do not provide for restrictions on shareholders' right to know. Therefore, sweet source company to Chen Shaolin did not pay the full amount of capital contribution constitutes the exercise of shareholders' right to know the defense of the restriction of the defense matter has no legal basis, the Court does not support this.