You worked hard to become a shareholder, only to suddenly discover that the company quietly passed a resolution behind your back: transferring core assets to a related party of the majority shareholder at a low price, increasing capital to dilute your equity, or even removing you from the board of directors outright. You are furious, yet there sits the resolution bearing the company seal in black and white—is it really valid? Do you have any way to “strike it down”?
The answer is: yes. This legal weapon is called an action for defective resolution. It is the “right of revocation” granted to shareholders, directors and supervisors by the Company Law, and the most critical procedural line of defense for minority shareholders against the majority shareholder’s “one-man rule.” Today, Lawyer Kevin Jun Lin will explain, in plain language, everything you need to know about actions for defective resolutions.
I. What Is an Action for Defective Resolution?
When a company holds a meeting to make a decision (a shareholders’ resolution or a board resolution), if there is a defect in procedure or substance, the law allows an interested party to sue the court to have the resolution declared “not duly formed,” “invalid,” or “revocable.”
These three types of claims have entirely different thresholds and consequences. Many parties file the wrong claim at the outset and miss the opportunity in vain. Please see the comparison below:
| Type | Applicable Circumstances | Time Limit for Suit | Legal Consequences |
|---|---|---|---|
| Resolution not duly formed | No meeting was held at all, no vote was taken, signatures were forged, or the number of attendees / voting rights fell short of the statutory quorum | No time limit (commences from when known or should have been known) | Deemed never to have been made |
| Resolution invalid | The content violates the mandatory provisions of laws or administrative regulations (e.g., withdrawal of capital, disguised profit distribution) | No time limit | Void ab initio and absolutely void |
| Resolution revocable | Minor procedural defects (inadequate notice, irregular voting method) or content violating the articles of association | 60 days from the date the resolution is made | Void ab initio upon revocation |
🔴 Lawyer Lin’s Tip: Among the three types, the most easily overlooked is “revocable”—it has a hard 60-day deadline. Many shareholders discover the problem only after a year has passed; if they then sue over a revocable resolution, the court simply dismisses it as time-barred. So “seek a lawyer the moment you spot something wrong” is not mere courtesy.
II. Three Major Benefits Brought by the New Company Law (2024)
The newly revised Company Law, effective July 1, 2024, is a genuinely “minority-shareholder-friendly” amendment for actions challenging defective resolutions:
1. It clarifies “not duly formed” as an independent cause of action. The old law only distinguished invalid from revocable, and in practice the characterization of a “fake resolution where no meeting was ever held” was chaotic. Article 27 of the new law expressly lists four circumstances in which a resolution is not duly formed: – resolutions made without convening a shareholders’ or board meeting; – meetings where no vote was taken on the matters resolved; – the number of attendees or the voting rights held failing to meet statutory or articles-of-association requirements; – the number of persons approving the matter or the voting rights held failing to meet statutory or articles-of-association requirements.
2. The starting point of the revocation right better protects the weaker party. Article 26 of the new law refines the “60 days from the date the resolution is made” rule: the period runs from the date the shareholder knew or should have known that the resolution was made, but in no event longer than one year from the date the resolution was made. In other words, if you were deliberately kept in the dark, the clock only starts running from the day you learned of it.
3. Bona fide third parties are protected, and transactions do not automatically collapse. After a resolution is revoked or declared invalid, the civil legal relationship formed between the company and a bona fide third party (a third party unaware of the defect) remains unaffected. This means that “striking down” the resolution will generally not void contracts the company signed with outside parties, avoiding the collateral disaster of “winning the lawsuit but wrecking the business.”
III. Who Is Qualified to Be a Plaintiff?
Not just anyone can sue; the qualification is expressly required:
- Action for resolution not duly formed / invalid: shareholders, directors and supervisors may all bring it; an interested party such as a creditor whose rights are harmed may also do so in specific circumstances.
- Action for revocable resolution: the plaintiff must be a person holding shareholder status at the time of suit (including a former shareholder who had already transferred their equity but was a shareholder when the resolution was made, who may still sue over a pre-transfer resolution).
- Note: plaintiff qualification is examined at the filing stage. If you sold all your equity before suing, the revocable-resolution action will most likely be dismissed—a common “qualification trap” in practice.
IV. How to Sue? Four Practical Steps of Offense and Defense
Step 1: Preserve the evidence; do not alert the enemy. First, through an action for inspection rights (see our earlier article), obtain the meeting notice, sign-in sheets, ballot papers, and the resolution text. Without these, you cannot even prove a “procedural defect.” Many cases are lost precisely because of an unsubstantiated claim that “no meeting was held.”
Step 2: Choose the correct cause of action and jurisdiction. An action for a defective resolution is under the jurisdiction of the court at the company’s domicile. The cause of action must be stated precisely—whether you plead “not duly formed” or “revocable” determines the limitation period and the burden of proof.
Step 3: Pin down the 60-day deadline. A revocable resolution must be filed within the time limit. It is advisable to send a written objection on the very day you discover it (WeChat, email, or paper mail all suffice), both to interrupt the dispute and to leave evidence of the “date of knowledge.”
Step 4: Prove the procedural defect. The core of a revocable-resolution action is “procedural irregularity”: notice not delivered to you, a surprise interim proposal, a related-party transaction without recusal, miscalculated voting rights, and the like. Such evidence is often buried in the meeting archives, so the inspection-rights access obtained in Step 1 is the precursor ammunition.
🔴 Lawyer Lin’s Tip: In practice, the win rate of a “revocable resolution” action often depends not on how well you know the statute, but on whether you first obtained the meeting draft documents. Most of the revocation cases I have represented began by using an inspection-rights action to pry open the company’s files, then turning around and filing the revocation action—this is the one-two punch.
V. How Can the Company Side Defend and Self-Help?
If you are the majority shareholder or the company side, do not panic upon receiving a revocation complaint; the statutory “shields” are:
- Minor-defect exception: Article 26 of the new law makes clear that where the meeting convocation procedure or voting method has only a minor defect and no substantive impact on the resolution, the court may dismiss the revocation claim. For example, the notice was sent half a day late but everyone attended and the voting result was unchanged.
- Apparent-resolution defense: if the resolution has been publicly disclosed to the outside and a third party relied on it in good faith, a claim for internal revocation does not affect external validity.
- Cure of procedure: arguing in the litigation that “the defect has been cured” or “the plaintiff subsequently ratified it” can weaken the revocability.
But note: for illegal content (invalid) and a resolution where no meeting was held at all (not duly formed), there is no “minor defect” safety net. Once these two types are established, the company has virtually no room to turn things around.
VI. Lawyer Lin’s Four-Point Pitfall Checklist
- The deadline is the lifeblood: revocable resolutions allow only 60 days, running from the date of knowledge and at most one year—no exceptions after expiry.
- Do not plead the wrong cause of action: “not duly formed”/”invalid” have no time limit, while “revocable” does; a wrong characterization loses everything.
- Inspection rights are the ammunition: first review the books and obtain the files, then bring the revocation action—the one-two punch doubles your win rate.
- The bona fide third-party moat: revoking a resolution does not automatically affect external transactions; do not expect “revoking the resolution to void the contract.”
8. Frequently Asked Questions (FAQ)
Q1: If I disagree with a shareholders’ resolution, is it necessarily invalid?
Not necessarily. A minority shareholder’s dissenting vote does not prevent the resolution from being valid if it passes by a majority of voting rights. A court may negate a resolution only in the three statutory situations of “not duly formed,” “invalid,” or “revocable”; a mere “I do not accept it” is not a ground.
Q2: I discovered an illegal resolution, but two years have already passed—can I still sue?
It depends on the type. If it is a “resolution invalid” (content violating mandatory law) or “resolution not duly formed” (no meeting held at all), there is generally no time limit and you may still sue; but if it is “revocable” (procedural defect / violation of the articles), the 60-day period has lapsed and the court will dismiss it. So act immediately upon discovering an anomaly.
Q3: The company says “we notified you in writing,” but I never received anything—what can I do?
This is a typical “revocable” procedural defect. You may plead that you were not lawfully notified and that the meeting convocation procedure was irregular, and sue for revocation within 60 days. The key is proving “non-receipt”—keep your usual communication records and evidence that your address was unchanged.
Q4: After a resolution is revoked, can assets the company previously transferred under it be recovered?
Revocation makes the resolution void ab initio, but transactions between the company and bona fide third parties remain unaffected (the new law protects bona fide third parties). If the assets were transferred to a “knowing related party,” you may separately claim damages for the related-party transaction, rather than relying solely on the resolution’s revocation.
Q5: A former shareholder sold their equity—can they still sue over an illegal resolution from their tenure?
Yes. For a resolution made “while you held shareholder status,” a former shareholder may still bring a revocable action even after transferring the equity, so long as it is within the time limit. But the “not duly formed / invalid” action has broader standing requirements, and interested parties may also plead it.
Leave a Reply