Kevin Jun Lin, Corporate Lawyer

Part 10 (Dispute Series) | The heir is only 8 years old—who exercises the equity rights? This article focuses on the easily overlooked dispute of “how a minor heir exercises shareholder rights,” combining the Civil Code capacity system, the guardianship system, and the new Company Law’s rules on inheritance of shareholder qualifications, to sort out the legal boundaries and practical risks of equity custodianship.

Core Conclusion (answered upfront)

Minors over the age of 8 are persons with limited civil capacity (Civil Code Art. 19); those under 8 are persons without civil capacity (Art. 20). The shareholder qualification they acquire by inheritance does not lapse because of age—shareholder qualification may be inherited by law (new Company Law Art. 90), but all rights attached to the equity are exercised by their guardian (legal representative). The guardian must act under the paramount principle of “in the best interests of the ward” (Civil Code Art. 35), and may not dispose of the ward’s equity property except to protect the ward’s interests. The child’s equity is not the parent’s ATM—an ultra vires disposition can be voided and gives rise to a damages claim.

1. A Three-Year “Guardian Equity Defense War”

Mr. Zhou and his ex-wife Ms. Liu divorced; their only son, little Zhou (age 8), lives with his mother. Mr. Zhou founded a software company alone and held 40% of the shares. At the end of 2024, Mr. Zhou died in a car accident without a will—little Zhou, as the sole first-order heir (both grandparents predeceased), inherited the entire 40% equity.

Trouble arrived: Mr. Zhou’s current business partner and majority shareholder, Mr. Wang, approached Ms. Liu saying, “the child is young, let me hold the equity on trust and pay you dividends every year.” As she nodded, Mr. Zhou’s brother showed up: by hometown custom, the nephew’s family property is the uncle’s share, demanding the equity be registered in his own name “to help manage it.” Meanwhile, the company happened to be raising a new financing round—who casts the voting rights attached to the 40% equity directly decides control of the company.

An 8-year-old child holds the fate of 40% of a company. The law’s answer is: the shareholder qualification belongs to the child, the exercise right belongs to the guardian, and the whole process wears the “best interests of the ward” tight spell.

2. Legal Characterization: the Child’s “Equity” Viewed in Three Layers

A frequently confused detail must be clarified: the “age 8” line is set out in Civil Code Arts. 19 and 20, while Art. 24 addresses the procedural question of “how an adult (or a person incapacitated by illness or injury) has their capacity determined by the court.” The two systems appear together in inheritance scenarios—minor heirs apply Arts. 19, 20, 27, and 35; only if the heir is an adult incapacitated by illness does Art. 24’s determination procedure and Art. 28’s guardianship order come into play.

3. Doctrinal Basis: Why “Capacity” Can Be Supplemented but “Identity” Cannot Be Deprived

The logical starting point of the modern civil-law capacity system is capacity for volition: a civil juristic act takes expression of intent as its core, and the actor must be able to understand the nature and consequences of the act. Minors lack mature minds, so the law draws the line by age (8, 18) and provides a legal-representative supplementation mechanism—not to remove the child from the transaction, but to let the guardian “lend” their own mind to decide for the child.

But the essence of guardianship is entrustment, not ownership. The guardian’s power derives from the office agency the law created to protect the ward, and its legitimacy boundary is the “best interests of the ward” principle of Art. 35. In doctrine this is called the duty-oriented nature of guardianship: guardianship is a duty, not a right; disposing of the ward’s property is a high-voltage line—because the consequences of the disposition are borne entirely by the ward, while the guardian may benefit from it, creating a natural conflict of interest.

Applied to equity inheritance, this theory yields a subtle conclusion: the “identity” dimension of shareholder qualification is not affected by capacity—the child himself is registered in the register of shareholders, while the “intent” when exercising rights is formed by the guardian on the child’s behalf. This corresponds exactly to the dual nature of equity: the property interest (dividends, appreciation) belongs to the child, while the common-interest rights (voting, information, proposal) are exercised by the guardian but the consequences fall on the child. If the guardian, under the guise of exercising voting rights, causes the company to pass a related-party transaction resolution favorable to himself, this is in substance “exercising guardianship in name but infringing in fact,” and the child may pursue it legally after reaching adulthood.

4. Legal Basis: Verbatim Article Check

Civil Code Art. 19: A minor over the age of eight is a person with limited civil capacity; civil juristic acts are performed by his legal representative or with the consent or ratification of his legal representative; provided, however, that he may independently perform civil juristic acts that purely confer benefits.

Civil Code Art. 20: A minor under the age of eight is a person without civil capacity, and civil juristic acts are performed by his legal representative on his behalf.

Civil Code Art. 24: Where an adult cannot recognize or cannot fully recognize his own conduct, an interested person or relevant organization may apply to a people’s court to have that adult declared a person without or with limited civil capacity.

Civil Code Art. 27: Parents are the guardians of their minor children. Where the parents of a minor are deceased or lack guardianship capacity, the following persons with guardianship capacity serve as guardians in order: (1) paternal/maternal grandparents; (2) elder siblings; (3) other individuals or organizations willing to serve as guardian, subject to the consent of the residents’ committee, villagers’ committee, or civil affairs department of the minor’s domicile.

Civil Code Art. 35: A guardian shall perform guardianship duties in accordance with the principle of acting in the best interests of the ward. A guardian may not dispose of the ward’s property except to protect the ward’s interests. When making decisions concerning the ward’s interests, a minor’s guardian shall respect the ward’s true wishes according to the ward’s age and intellectual development.

New Company Law Art. 90: After the death of a natural-person shareholder, his lawful heirs may inherit the shareholder qualification; provided, however, that the company’s articles of association may provide otherwise.

Note the detail in the second paragraph of Art. 35: when making decisions, the guardian shall respect the minor’s true wishes. For an 8-year-old, this means on major equity decisions the guardian must at least listen to and record the child’s views; once the child turns 8, he may even independently perform “purely beneficial” acts (such as receiving dividends).

5. Judicial Rules: Four Boundaries Drawn by the Courts

Rule 1: A minor heir acquires shareholder qualification as a matter of course. Where the articles do not exclude inheritance, the minor does not lose the inherited qualification by reason of being without/with limited capacity, and the company may not refuse to amend the register of shareholders on the ground that “the heir is a minor.” Courts typically order the company to cooperate in registering the minor as a shareholder, while noting in the registration documents that rights are exercised by the legal representative.

Rule 2: A guardian’s disposition of the minor’s equity is valid only if it “protects the ward’s interests.” Where a guardian transfers, pledges, or undervalues the child’s inherited equity without authorization, other heirs, the child’s other guardian, or the child himself (after adulthood) may claim the disposition void or claim damages. The judiciary strictly scrutinizes “protecting interests”: the proceeds must be used for the child or flow at an obviously fair price; “to keep the family business afloat” is not a legitimate reason.

Rule 3: Divorce does not extinguish guardianship; both parties jointly exercise the substitution right. After divorce, both the custodial and the non-custodial parent remain guardians (divorce divides custody, not guardianship). On exercising the child’s equity, the two should in principle reach consensus; in practice the custodial parent leads operations, but on major dispositions (outbound transfer, consent to dilution by financing) the other parent has the right and duty to participate—a unilateral disposition carries voidability risk. In the opening case, Ms. Liu’s unilateral consent to Mr. Wang’s “holding on trust” is exactly such a high-risk act.

Rule 4: Where the guardian has a conflict of interest, the court may intervene. If the guardian happens to be another shareholder of the company (e.g., the successor controller), and his casting of the child’s vote conflicts with his own interest, other interested persons may apply under Civil Code Art. 36 to revoke the guardianship qualification, or request the court to designate a special procedure; the more common practical path is to require conflict-vote abstention or pre-arrange an independent trustee in a co-ownership agreement.

6. Intersection with the Company Law: Three Issues for a Minor Shareholder

Issue 1: Voting rights. In computing voting rights under corporate governance rules (e.g., the new Company Law Art. 66 requirement for ordinary resolutions), the minor shareholder’s portion is counted normally; only the vote is cast by the legal representative at the shareholders’ meeting. The company may not refuse to let it be exercised on the ground that “the guardian’s identity is questionable”—the dispute should be resolved through a guardianship-confirmation action, not corporate self-governance.

Issue 2: Capital contribution liability. Where the inherited equity is subscribed but not paid in, the contribution obligation is borne by the minor heir and actually arranged/paid by the guardian, but satisfaction is limited to the actual value of the estate (Civil Code Art. 1161, limited inheritance). If the company, under the new Company Law Arts. 88 and 54 acceleration-of-maturity rules, pursues contribution, the guardian must respond with the child’s estate share; the child’s personal property beyond that does not bear liability.

Issue 3: Articles exclusion clause. A company may stipulate in advance in its articles that a minor heir inherits only the property value, with the equity repurchased by other shareholders and the child not becoming a shareholder. Conversely, where the heir holds through a partnership vehicle, a minor cannot become a general partner executing partnership affairs and bearing unlimited joint and several liability—this conflicts with the capacity system. This rule is a direct warning to entrepreneurs using partnership platforms: reserve an inheritance-handling clause in the partnership agreement, stating that a minor heir automatically converts to an LP and arranging a repurchase of the interest.

7. Partnership Interests: Minor Heirs and the Partnership Enterprise Law

Under Art. 50 of the Partnership Enterprise Law, after a partner’s death his heir may lawfully acquire the partnership interest; but a minor, with the unanimous consent of the other partners, may become a limited partner (the enterprise converts to a limited partnership), and if consent is not obtained the enterprise returns the property interest. This also reflects the partnership platform’s personality-based nature—a minor cannot be a GP (general partner) bearing unlimited joint and several liability.

8. Practical Advice: Four Steps to Build the Child’s “Equity Firewall”

1. Make a will in life + appoint an equity trust or custodianship arrangement. In the will the decedent should not only designate the child as heir to the equity, but also appoint a trustworthy adult (or institution) to exercise equity-related affairs before the child comes of age, and set a supervisor. Families with means may use a testamentary trust (the inheritance chapter recognizes its creation), placing the equity into the trust, with proceeds to the child and control exercised by the trustee per the trust document—thoroughly isolating guardianship risk.

2. Pre-set a minor-heir clause in the articles. State that “where the heir is a minor, other shareholders repurchase or hold on trust at a fair price (audited net assets / appraised value) until he comes of age,” and stipulate an escrow account for the repurchase consideration. Fair consideration + fund escrow is the double insurance that lets the clause survive Art. 35 scrutiny.

3. Sign a guardianship-exercise agreement, co-signed by both guardians. Divorced families especially should agree in writing: major equity matters (transfer, pledge, financing, M&A voting) require the unanimous consent of both guardians; routine matters (dividend collection, information-rights exercise) are handled by the custodial parent. The agreement cannot defeat a bona fide third party, but internally it is a clear basis for accountability.

4. Manage dividends in a separate account with a documented trail. Open an independent account for the child to receive dividends, strictly segregated from the guardian’s own property; where the guardian moves funds out (except for education or medical expenses), retain vouchers. Commingling is the hardest-to-defend landmine in later “misappropriation of the ward’s property” disputes.

9. Frequently Asked Questions (FAQ)

Q1: After the parents divorce, does the child’s equity “ust belong to the custodial parent to manage”?
Not “owned” by either side. Both parents are guardians and both have substitution rights; only routine affairs are usually handled by the custodial parent. Major dispositions require consensus. The child’s equity always remains the child’s personal property (from inheritance) and belongs to no guardian.

Q2: Can a guardian sell the child’s equity to save a struggling business?
No. Civil Code Art. 35 expressly forbids a guardian from disposing of the ward’s property except for the ward’s benefit. Even motivated by “saving the company to indirectly protect the child’s dividends,” it is hard to have recognized judicially—unless the transaction is clearly favorable to the child (e.g., a high-price cash-out), it can be voided and liability pursued.

Q3: After the child comes of age, can he overturn decisions made for him during guardianship?
Yes, he may assert. Where a guardian ultra vires disposed (e.g., low-price transfer, signing an unfavorable VAM), the child after adulthood may, on grounds of unauthorized agency or infringement of the ward’s interests, petition to confirm the act void or claim damages; the limitation period runs from when he knew or should have known, and a minor’s infringed limitation protection is more favorable.

Q4: Can the company refuse to register a minor heir as a shareholder?
Where the articles contain no exclusion clause, no. A minor inherits shareholder qualification under new Company Law Art. 90; the capacity issue affects only how rights are “exercised” (by the legal representative), not whether qualification is “obtained.” Where the articles contain a lawful exclusion clause, the clause governs (typically repurchase at a discount).

Q5: If the child inherits a partnership interest, can he still be a partner?
Not a general partner. Under Partnership Enterprise Law Art. 50, a minor heir may become a limited partner with the unanimous consent of the other partners (the enterprise converts to a limited partnership); if consent is not obtained, the enterprise returns his property interest. This too reflects the partnership platform’s personality-based nature.