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Equity Dispute FAQ

Below are frequently asked questions on equity and shareholder disputes, compiled by Lawyer Kevin Jun Lin from litigation practice. Every case differs — please consult a lawyer for advice on your specific situation. Answers are currently published in Chinese; use the language switch for the Chinese version, or contact us in English through the form.

May you entrust lawyers and accountants to conduct the inspection, and who bears the cost?

You may entrust intermediaries, and the newly revised Company Law expressly supports this. The inspection and copying costs of the intermediary institutions are borne by the shareholder, but professional involvement can substantially improve the quality of inspection and the efficiency of subsequent rights protection. Further Reading The Right of First Refusal in Shareholders’ Agreements: One Clause That Determines Whether You…

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Is the spouse always entitled to a share of pre-marital equity's post-marital appreciation?

Not necessarily. The key lies in the nature of the appreciation. If it is natural appreciation (passive market factors), it belongs to the individual and the spouse has no right to a division; if it is active appreciation (generated by one party’s post-marital management and input), it constitutes investment income and is marital property, to which the spouse is entitled.…

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If the nominee shareholding agreement cannot be found, can the equity still be recovered?

It is very difficult but not impossible. Without a written agreement, reliance must be placed on an indirect chain of evidence to prove the nominee shareholding relationship: capital contribution records (records of the capital you remitted to the nominee), dividend records (records of dividends the nominee remitted to you), evidence of participation in management (records of your attendance at shareholders’…

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If a shareholder who has withdrawn capital transfers their equity, can they still be held liable?

Yes. The legal liability for withdrawal of capital is not discharged by an equity transfer. The company, other shareholders, or creditors may still require the shareholder to bear liability within the scope of the principal and interest withdrawn. A transferee who knew or should have known of the withdrawal may also be held liable.

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Can a creditor directly sue a shareholder who has withdrawn capital to recover payment?

Yes. A creditor may raise the claim together with a lawsuit against the company on the debt dispute, or apply at the enforcement stage to add the shareholder who has withdrawn capital as a person subject to enforcement, requiring the shareholder to bear supplementary compensation liability for the unsatisfied portion of the company’s debts within the scope of the principal…

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The company claims it 'notified you in writing,' but you never received it—what should you do?

This is a typical ‘voidable’ procedural defect. You may assert that you were not lawfully notified and that the meeting was convened in violation of procedure, and file a suit to revoke the resolution within 60 days. The key is to prove ‘non-receipt’—keep evidence such as your communication records and proof that your address has not changed. Source article: Can…

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Is a provision in the articles of association stating 'shareholders may not inspect the accounting books' valid?

No. A shareholder’s right to inspect is a statutory right that cannot be deprived in advance through the articles of association or a shareholders’ agreement. Even if you sign to ‘voluntarily waive’ it, such a clause is void because it violates mandatory legal provisions. Source article: The Company Never Distributes Dividends or Shows You the Books? The Action for Inspection…

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If the nominee shareholder is in debt, can the equity registered in their name be subject to compulsory enforcement?

Yes. Industrial and commercial registration has public notice effect, and a creditor’s application for compulsory enforcement against the equity registered in the name of the recorded shareholder is lawful. A hidden shareholder’s objection to the enforcement is unlikely to succeed—this is the most dangerous risk of nominee shareholding and must be assessed before signing any such arrangement. Source article: Who…

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What should you do next when inspection reveals discrepancies between the books and the actual assets, or a suspected hollowing-out of the company?

The action for inspection rights is a means, not an end. Once verified, you may further assert the right to request profit distribution, file an action concerning liability for harming the company’s interests (a shareholder derivative action), or, where the conditions are met, request the company to repurchase the equity or dissolve the company. Source article: The Company Never Distributes…

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After the original shareholder sells the equity, can they still challenge unlawful resolutions made during their tenure?

Yes. For a resolution ‘adopted while you held shareholder status,’ a former shareholder still has the right to bring a voidable action even after transferring the equity, as long as it is within the time limit. However, actions for ‘not formed/void’ resolutions have broader standing requirements, and interested parties may also assert them. Further Reading The Company Never Distributes Dividends…

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