Company Never Pays Dividends or Shows the Books? An Action for Inspection Rights Shows You How to Legally Inspect | Lawyer Kevin Jun Lin
You put in real money and invested in a company, becoming a shareholder registered in the industrial and commercial registry. Yet throughout the year, the company never distributes dividends to you, and you have never seen a proper financial statement. When you ask the majority shareholder “is the company actually making money,” the other side either answers evasively or simply snaps back “trade secret, no comment.”
You begin to suspect: is someone quietly hollowing out the company? But if you cannot even see the books, what can you use to prove it?
Do not worry. The Company Law long ago left you a “key”—the shareholder’s right to inspect. Used well, this key lets you lawfully open the company’s account books and vouchers, and even appoint an accountant to inspect for you; used poorly, the company’s “shield” will slam the door in your face.
In this article, Lawyer Kevin Jun Lin explains, in plain language, shareholder inspection rights from “what they are” to “how to use them,” and appends the five most frequently asked questions in practice.
I. What Is the Shareholder’s Right to Inspect?
Simply put, the shareholder’s right to inspect is the shareholder’s right to know the company’s operational and financial condition. It is the prerequisite for the shareholder to participate in major decisions, receive dividends, and supervise senior management—if you do not even know the company’s true situation, how can you claim to be in charge?
Article 57 of the newly revised Company Law (effective July 1, 2024) expressly provides for the inspection rights of shareholders of a limited liability company. It is both the shareholder’s “eyes” and an important weapon to check the majority shareholder and management.
Lawyer Lin’s Tip: The right to inspect is a statutory right; it cannot be stripped by the articles of association, nor can a shareholders’ agreement “contract it away”—even if you sign in black and white that you “will not inspect the books,” that clause is most likely invalid.
II. What Exactly Can You Inspect? (Explained in One Table)
| Type of Material | Inspectable? | Copyable? | Limitations |
|---|---|---|---|
| Articles of association | ✅ Inspectable | ✅ Copyable | None |
| Shareholders’ register | ✅ Inspectable | ✅ Copyable | None |
| Shareholders’ meeting minutes | ✅ Inspectable | ✅ Copyable | None |
| Board / Supervisory Board resolutions | ✅ Inspectable | ✅ Copyable | None |
| Financial and accounting reports | ✅ Inspectable | ✅ Copyable | None |
| Accounting books (general ledger, subsidiary ledgers, journals, etc.) | ✅ Inspectable | ❌ Not copyable | Written request + statement of purpose required; company may refuse on grounds of “improper purpose” |
| Accounting vouchers (bookkeeping vouchers, original vouchers, etc.) | ✅ Inspectable | ❌ Not copyable | Same as above; this is a new highlight added by the new Company Law |
Note the last two rows: accounting books and accounting vouchers may only be “inspected” but not “copied”, and the company has the right to refuse—but the refusal must be for a proper reason; it cannot simply say “no.”
III. The Correct Steps to Exercise Inspection Rights (Follow Them Exactly)
Many shareholders rush straight to litigation and get dismissed by the court, wasting litigation fees for nothing. The correct sequence is as follows:
Step 1: Submit a written inspection request. Mail an “Application for Inspection of Accounting Books” by EMS, stating clearly: that you are a shareholder (attach capital contribution proof / business registration), what you wish to inspect, and what your “purpose” for inspection is (e.g., “to understand the company’s true financial condition and assess the reasonableness of dividend distribution”). Be sure to keep the mailing receipt and the acknowledgment record.
Step 2: Wait for the company’s response (15 days). After receiving the written request, if the company refuses, it must reply in writing within 15 days and state its reasons. If the company neither shows the books, nor responds, nor simply says “no”—
Step 3: Sue (action for inspection rights). File a lawsuit with the court at the company’s domicile, requesting an order that the company permit inspection. Such cases are docketed under the cause “shareholder inspection rights dispute,” a high-frequency category of corporate governance disputes.
Lawyer Lin’s Tip: The “written request” in Step 1 is a statutory pre-procedure; without it, a direct suit will likely be rejected or dismissed by the court. This step cannot be skipped.
IV. The Company’s Most Common “Shield” and How to Break It
When refusing inspection, the vast majority of companies invoke the same reason: “You have an improper purpose that may harm the company’s interests.”
What is an “improper purpose”? The judicial interpretation lists several typical situations, for example:
- a shareholder engages in or operates for others a business substantially competitive with the company’s principal business;
- a shareholder inspects the books to disclose information to a competitor;
- a shareholder has, within three years, disclosed information obtained through inspection to others, harming the company’s interests.
Key to breaking it:
- As long as you state a proper and specific “purpose” in the application (understanding finances, supervising operations, assessing equity value), the burden shifts to the company to prove your improper purpose—the burden of proof is on the company, not on you.
- The company cannot refuse merely by saying “it involves trade secrets.” Trade secrets are your duty of confidentiality when inspecting, not a ground to refuse inspection.
- If the company cannot produce concrete evidence, the court will side with you.
V. A Few Pitfalls Easily Stepped On in Practice
Q: May I bring an accountant to inspect with me? Yes. The new Company Law expressly provides that a shareholder’s inspection may be conducted through intermediary agencies such as an accounting firm or a law firm. Can’t understand the books on your own? Get a professional to help—the law supports it.
Q: Where do I inspect, and for how long? Generally at the company’s domicile. The law does not rigidly prescribe “how many days”; in practice the court determines it at its discretion in the judgment, commonly “inspect during working hours, for a period of 10–15 working days.”
Q: What if the company hides the books and says they are “lost”? This constitutes refusal to perform an effective judgment, for which compulsory enforcement may be applied; in serious cases, the responsible person may face fines or detention. More importantly, the “loss” of the books themselves often exposes a more serious financial problem.
VI. Three Benefits Brought by the New Company Law (2024)
- Accounting vouchers brought into the inspection scope: the old law only mentioned “accounting books”; the new law expressly includes “accounting vouchers” (the most basic original documents), closing the loophole of companies that “balance the books but fake the vouchers.”
- Intermediaries permitted: professionals do professional work, so minority shareholders no longer suffer in silence for being unable to read the books.
- Parent-company shareholders may inspect wholly-owned subsidiaries: preventing majority shareholders from shifting interests and evading supervision through subsidiaries.
VII. Lawyer Kevin Jun Lin’s Practical Recommendations
- Solidify shareholder-identity evidence as early as possible: capital contribution certificates, articles of association, shareholders’ register, and business registration—keep them on hand at ordinary times.
- Make the written request proper and standard: state the purpose clearly and keep traces of the materials; this is the foundation of winning.
- Sue decisively when necessary: prolonged non-distribution of dividends and opaque finances are themselves danger signals; the inspection-rights action is low-cost and high-probability, the “first shot” of shareholder rights protection.
- Engage a professional lawyer: from drafting the application, formulating the evidentiary strategy, to the trial, professional involvement can significantly expand the scope and efficiency of inspection.
Frequently Asked Questions (FAQ)
Q1: Is a charter clause stating “shareholders may not inspect the accounting books” valid? Invalid. The shareholder’s right to inspect is a statutory right and cannot be pre-emptively stripped by the articles of association or a shareholders’ agreement. Even if you sign to “voluntarily waive” it, that clause is invalid for violating the mandatory provisions of the law.
Q2: Can the company refuse inspection just by claiming “you have an improper purpose”? It cannot refuse casually. The company must prove that your inspection serves an “improper purpose” and may harm the company’s interests (e.g., you operate a competing business, or have previously leaked secrets). Merely asserting “trade secret” is not a ground for refusal; you need only bear a confidentiality duty when inspecting.
Q3: Under the new Company Law, can shareholders inspect the most original vouchers? Yes. The new Company Law, effective July 1, 2024, adds “accounting vouchers” to the inspectable scope, including bookkeeping vouchers, original vouchers, and other most basic documents, closing the loophole where only the books—but not the real transactions—could be seen.
Q4: If inspection reveals discrepancies between the books and the facts, or suspected hollowing-out, what next? The inspection-rights action is a means, not an end. After confirming the facts, you may further assert the right to dividend distribution, file a dispute over liability for harming company interests (a derivative action by shareholders), or, where conditions are met, request the company to repurchase the equity or dissolve the company.
Q5: May a lawyer and an accountant be engaged for inspection, and who pays? Yes, and the new Company Law expressly supports it. The inspection and copying costs of the intermediary agency are borne by the shareholder, but professional involvement can substantially raise the quality of inspection and the efficiency of subsequent rights protection.
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