Service Background

Engagement Counsel: Attorney Kevin Jun Lin
Case Overview:

A certain cross-border e-commerce technology company was incorporated in 2014, primarily operating after-sales service management for overseas consumer-electronics products, and had established cooperation with platforms such as AliExpress and JD Worldwide. The corporate group included an offshore subsidiary (formerly held by a co-founder as nominee, to be brought back under the target company). The three-person founder team held shares through individual ownership and an employee shareholding platform. Starting in 2016, the company launched an angel round and introduced a venture capital fund; it later went through major equity changes including the exit of a co-founder and the exit of the investor, with legal support provided by counsel throughout.

Core Legal Work

Phase 1: Equity Structure & Cooperation-Framework Design (2015)

• Drafted the Cooperation Framework Agreement and a supplementary agreement, transferring 100% of the offshore subsidiary’s equity held by the co-founder as nominee back to the target company at no cost, and clarifying the nominee relationship and ownership.
• Confirmed the shareholders’ prior inter-company advances as paid-in registered capital, clearing historical debt boundaries and removing obstacles for subsequent financing.

Phase 2: Capital-Increase Agreement Design (March 2017)

The venture capital fund subscribed for 15% of the company’s equity for RMB 7 million (post-money valuation approx. RMB 46.67 million). Counsel drafted the Capital-Increase Agreement, building a full set of investor-protection clauses:

• Anti-dilution & preemptive subscription: the price of a new round may not be lower than that of the current round; the investor enjoys a preemptive subscription right pro rata and may require the original shareholders to transfer equity at no cost to make up the price difference.
• Transfer restrictions & co-sale (tag-along): before an IPO, a transfer of equity by an original shareholder requires the investor’s consent; the investor enjoys a co-sale right and may sell pro rata together with the original shareholders.
• Redemption right: when an original shareholder ceases to hold an executive position or commits a material breach of trust, the investor may require redemption of all or part of the equity at simple interest of 12% per annum.
• Liquidation preference: upon liquidation, dissolution or acquisition of the company, the investor is repaid the capital contribution plus a 10% annual return ahead of others, with the remaining assets distributed pro rata.
• Non-compete & IP ownership: the original shareholders devote themselves full-time and may not operate a similar business; all business-related IP belongs to the target company.
• Financial disclosure & compliance review: monthly/quarterly/annual management accounts are reported regularly; the investor is entitled to periodic compliance advisory and inspection.
• Governance structure: a five-member board (one appointed by the investor); material matters require unanimous director approval or passage by 86% of voting rights.
• “Next project” catch-all clause: if the company is liquidated before an IPO, the investor may acquire, at zero consideration, a certain percentage of equity in the founder’s next venture.

Phase 3: Articles of Association Amendment (April 2017)

In tandem with the capital increase, the articles of association were amended to embed the investor-protection clauses at the governance level: clarifying board composition and voting mechanism, the 86% voting-rights threshold for material matters, and profit-distribution rules (no less than 30% distribution when annual net profit is between RMB 10 million and RMB 30 million), ensuring the agreement is enforceable at the corporate-governance level.

Phase 4: Founder’s Equity-Transfer Exit (April 2018)

A co-founder exited the company, transferring all of his 21.25% equity to the investor (5%) and the employee shareholding platform (16.25%) at RMB 1, together with the corresponding capital-contribution obligations. Counsel drafted the shareholders’ resolution and two equity-transfer agreements, ensuring a lawful exit path and a proper waiver of other shareholders’ right of first refusal.

Phase 5: Investor-Exit Risk Checklist & Directed Capital-Reduction Plan (2026)

The investor intended to exit; counsel systematically reviewed the legal risks of four exit paths:

• Directed (non-proportional) capital reduction — the final plan: based on the Company Law as revised in 2023, a non-proportional directed capital-reduction scheme was designed — the investor’s holding reduced from 25% to 0%, registered capital reduced from RMB 11.7647 million to RMB 8.8235 million, with the reduction amount repaid monthly. Creditor-protection procedures were put in place (balance-sheet preparation, creditor notice, announcement on the National Enterprise Credit Information Publicity System, and security arrangements).
• Equity-transfer exit: assessing the feasibility of a transfer to a third party and the lock-up constraints.
• Liquidation & deregistration exit: invoking the “next project” catch-all and the liquidation preference in the investment agreement to analyse the investor’s protection mechanism on a liquidation path.
• Exit risk checklist: item-by-item legal basis, agreement-clause references, steps and potential risks for each path, for the parties’ decision-making.

Phase 6: Cross-Border E-Commerce Compliance Advisory

For the company’s cross-border e-commerce export business, counsel compiled a compliance checklist covering: customs registration and choice of declaration platform (differences among supervision codes 9710/9810/0110/9610), export VAT rebate policy, assessed-collection corporate income tax in comprehensive pilot zones, and overseas IP-infringement response (TRO temporary-injunction response, settlement and defense procedure, and the litigation strategy of various U.S. law firms), providing systematic legal guidance for compliant cross-border operations.

Significance

• A benchmark for full-cycle non-litigation service: from cooperation-framework design to investor exit, spanning nearly a decade and covering the complete “incorporate — finance — govern — exit” life cycle of a startup, demonstrating the sustained value of non-litigation counsel in corporate equity work.
• Systematic design of investor-protection clauses: anti-dilution, preemptive subscription, co-sale, redemption, liquidation preference, non-compete, IP ownership and compliance review — an eight-in-one clause system balancing investor protection with operating flexibility, a template for similar financing deals.
• Founder-exit path design: a RMB-1 transfer plus assignment of capital-contribution obligations achieved a co-founder’s smooth exit, meeting the exiting party’s needs while avoiding cash-flow pressure on the company, and ensuring a compliant waiver of other shareholders’ right of first refusal.
• A new directed-capital-reduction exit path: based on the new Company Law of 2023, a non-proportional directed capital-reduction scheme offers investors a third exit path beyond equity transfer and liquidation, with full creditor-protection procedures balancing exit efficiency and transaction safety.
• Forward-looking value of an exit risk checklist: before the investor’s exit decision, systematically mapping all available paths’ legal basis, steps and risks helps the parties choose optimally with full information — exit is not an end point but a legal project requiring careful design.

Case Overview (Anonymized)

• Cause of action: private lending dispute (pursuit of a large loan)
• Amount in dispute: principal lent approx. RMB 3.1 million (of which RMB 2.5 million was financed by the lender mortgaging his own property, and RMB 0.6 million was his own funds)
• Role: Attorney Kevin Jun Lin acted for the lender (plaintiff)
• Background: the lender (plaintiff) lent funds to the borrower (the actual controller of a supply-chain company) for the company’s operations; the borrower’s spouse served as the supply-chain company’s legal representative and shareholder, and long used a personal account to receive and pay company funds. After default, the lender claimed that the borrower’s spouse and the supply-chain company should bear joint and several liability.

Key Issues

1. Whether the spouse should bear joint repayment liability for a debt borrowed in one spouse’s personal name and used for the company’s operations (determination of marital-couple debt).
2. Effect of the loan’s source on contract validity — RMB 2.5 million was financed by mortgaging property; whether this constitutes “on-lending of funds borrowed from a financial institution” rendering the contract void.
3. Whether the spouse’s defense of “nominee shareholder, no participation in management, not for family use” exempts liability; and the legal consequences of commingling with company property.

Representation Strategy

1. Lock down the lending facts: through the promissory note, transfer records, WeChat chat records and the opponent’s admissions in interrogation transcripts, fix the basic fact of “borrowed in a personal name, used for company operations.”
2. Joint-operation route: the spouse was formerly the company’s sole shareholder, now holds shares and is its legal representative, and long used a personal account for company funds — even if he claims to be a nominee shareholder or merely serves as a cashier, this is deep participation in operations, satisfying the “joint operation by the couple” under Article 1064 of the Civil Code, so it should be recognized as a marital-couple debt.
3. Joint repayment by company and individual: the borrower, as the company’s actual controller, borrowed in a personal name and the funds were used for the company, and the spouse bears a marital-couple debt; under the private-lending judicial interpretation, claim joint liability of the company and the individual.
4. Property-commingling fallback: the spouse’s personal account was commingled with company property and independence could not be proved, further establishing the basis for joint liability; even a “nominee shareholder” cannot defeat an innocent creditor.
5. Procedure and evidence handling: the opponent’s submitted criminal prosecution opinion (not yet effective, sent back for supplementary investigation) should not be directly relied on, but adverse admissions in it may be used; at the same time, clarify the risk boundary that the RMB 2.5 million on-lending voids the contract and only a capital-occupation fee may be claimed.

Judgment

The court held: the RMB 2.5 million loan, sourced from the lender’s mortgaged-property loan and constituting on-lending of funds borrowed from a financial institution, rendered the private-lending contract void, supporting only a capital-occupation fee at 5.25% per annum (the agreed high interest was denied); as this was little different from the 6% interest agreed between the parties, its impact on the plaintiff’s claim was negligible — after set-off the principal was approx. RMB 2.4866 million; the RMB 0.6 million loan contract was valid and accrued interest at 12% per annum. On the spouse’s liability, the court found the couple jointly operated the company and the debt fell within Article 1064 of the Civil Code, and ordered the spouse and the supply-chain company to bear joint repayment liability for the borrower’s debt. The lender’s core claims were upheld.

Significance

• “Joint operation by the couple” is the key route to recognizing a debt incurred in one spouse’s personal name as a marital-couple debt: even if the spouse defends “nominee shareholder, not for family use,” so long as they hold shares, serve as legal representative and participate in operations via a personal account, the court may still find joint operation.
• For creditors, lending to a “spouse + family business” combination, one may claim the spouse’s and the company’s joint liability along two lines — “joint operation + property commingling” — greatly expanding the pool of enforceable assets.
• Practical warning: on-lending of funds borrowed from a financial institution voids the private-lending contract; high agreed interest cannot be supported and only a capital-occupation fee may be claimed — the source of funds in large lending must be compliant.
• A personal debt may become a company debt: although borrowed in a personal name, where the funds are used for company operations and the spouse, as shareholder/legal representative, jointly operates and commingles property, the court may order the company to bear joint repayment liability for the personal debt — this opens a new remedy for creditors to directly pursue the company’s assets, greatly improving the likelihood of recovery.
• Corporate-risk note: a company should beware — where its actual controller or spouse borrows in a personal name and uses the funds for company operations, compounded by property commingling, the company may be forced to bear joint liability for the personal debt. It is advisable to maintain financial independence, avoid mixing personal and corporate accounts, and keep written records of management decisions and fund flows, to isolate the piercing risk of personal debts to company assets.

Case Overview (Anonymized)

• Cause of action: sales-contract dispute (quality dispute over electronic components)
• Amount in dispute: the plaintiff claimed economic loss approx. RMB 48 million and liquidated damages RMB 2.175 million
• Role: Attorney Kevin Jun Lin acted for the defendant (a distributor of electronic components)
• Background: the plaintiff purchased a brand’s standard general-purpose MOSFETs from the defendant for use in its self-produced on-board chargers (OBC) for electric vehicles; in use, attenuation of the MOSFETs’ bond strength caused charger failure, and the plaintiff sued the intermediary for the claimed quality non-conformity.

Key Issues

1. How to determine the product-quality standard — by the buyer’s internal quality standard, a military standard, or the manufacturer’s specification sheet?
2. Whether a quality defect exists — how to allocate the burden of proof, and whether quality appraisal should be initiated?
3. Scope of damages and foreseeability — the components themselves were worth only about RMB 0.3 million, vastly different from the plaintiff’s claimed nearly RMB 50 million.
4. Whether the defendant was a proper party — whether the prior meeting minutes and return agreement had already effected a debt transfer and an exemption from liability.

Representation Strategy

1. Contract-chain analysis: from the Supply Agreement to the successive emails, part-selection acknowledgements and purchase orders, reconstruct the full contractual relationship, proving the defendant had, at the selection stage, expressly informed the plaintiff in writing to use strictly per the manufacturer’s specification sheet at its own risk, and capped liability at the value of the failed components themselves.
2. Debt transfer & exemption: the meeting minutes and return agreement signed by the plaintiff had released the defendant from liability and directed recourse to the original manufacturer; the plaintiff’s suit contrary to its own signed written agreement should not be upheld.
3. Standard general parts + over-spec use defense: the defendant supplied the manufacturer’s standard general parts; the plaintiff selected non-automotive-grade parts for an automotive-grade product and used them beyond specification; other customers of the same batch had no such problem, so the failure should be attributed to the plaintiff’s own design and use.
4. Evidence counterattack: the plaintiff’s testing reports had fundamental flaws — some tested already-failed samples (proving only the result, not the cause) while new products of the same batch tested qualified; other reports violated the specification sheet in test conditions (confusing case temperature/junction temperature) and cited wrong parameters and formulas, in fact proving over-spec use.
5. Capping the damages: under the foreseeability rule of Article 584 of the Civil Code, much of the plaintiff’s loss rested on internal agreements with its subsidiary and third parties, unforeseeable to the defendant when contracting; even at full liability, the components were worth only about RMB 0.3 million.
6. Fault and aggravation of loss: the plaintiff’s product failure rate reached 10%, showing major fault in quality management; it had previously been dismissed by another court for an unclear basis of claim.

Judgment

The court of first instance dismissed all the plaintiff’s claims; the court of second instance dismissed the appeal and affirmed. The claimed damages and liquidated damages were not supported; the defendant bore no liability and the plaintiff bore the litigation costs of both instances.

Significance

• In technology-intensive commercial disputes, the agent’s grasp of technical standards and testing methods is often decisive (this case involved bond strength of MOSFETs, power cycling, case/junction temperature, industry standards and other specialist issues).
• The defense path of “standard general parts + selection disclosure + over-spec use” is of great reference value to distributors and intermediaries of electronic components.
• Systematically capping the damages scope through “contract chain + exemption agreement + foreseeability rule” effectively defeats high-value claims.
• Confirmed: in sales-contract quality disputes, an intermediary can effectively isolate risk through complete contract management and disclosure obligations.

Case Overview (Anonymized)

• Case number: withheld (per confidentiality)
• Cause of action: a company-related dispute (shareholder exit / equity repurchase)
• Amount in dispute: the plaintiff claimed equity repurchase of RMB 10 million plus interest (5% per annum), lawyers’ fees of RMB X, and preservation fees, etc.
• Role: Attorney Kevin Jun Lin acted for the defendants (the company’s actual controller and the company)
• Background: in 2021 the plaintiff invested RMB 15 million in a cultural-creative company, obtained 5% equity and completed industrial-and-commercial registration. In 2023 the plaintiff, the company’s actual controller (a hidden shareholder) and the nominee signed a Cooperation Agreement, under which the plaintiff could, within two years, require the actual controller or the nominee to repurchase its 5% equity for RMB 10 million plus 5% annual interest; the company bore joint and several repayment liability. In 2024 the plaintiff formally demanded repurchase; the defendants did not perform, and the plaintiff sued for the RMB 10 million repurchase plus interest, with the company jointly liable.

Key Issues

1. Whether the Cooperation Agreement was valid — where the company guarantees for its shareholder/actual controller without a shareholders’ resolution, does the company’s seal invalidate the act?
2. Whether the Cooperation Agreement was a “zero-risk minimum-guarantee” investment agreement — providing “return of principal with interest on loss, dividends on profit” — violating the principle of fairness and public order?
3. Whether the repurchase object was lawful — it provided for repurchase by the actual controller, but did the clause in substance constitute a company repurchase violating the statutory circumstances of Article 89 of the Company Law?
4. The relationship between the Cooperation Agreement and the prior Investment-Cooperation Agreement — whether the former was independent of the latter, and whether the plaintiff was in fundamental breach (having not actually paid the investment).
5. Whether the agreement was factually rescinded — had the parties agreed to renegotiate the equity transfer without reaching agreement?
6. Whether the defendant parties were proper — the plaintiff sued both the actual controller and the nominee together, violating the “elect one” clause.

Representation Strategy

1. Invalidating the company guarantee: under Article 15 of the Company Law, a company’s guarantee for its shareholder/actual controller requires a shareholders’ resolution, and the benefited shareholder/actual controller may not vote. Here the actual controller and nominee, as guarantee beneficiaries, participated in signing; the other shareholders did not convene a resolution; the company’s sealing violated the company’s will and the guarantee was void. The parties, knowing the company had three shareholders not two (evidence showed both parties knew of the outside hidden shareholder), bypassed the procedure, constituting malicious collusion harming a third party (other shareholders and creditors) — under Article 154 of the Civil Code the agreement was void.
2. Voiding the zero-risk minimum-guarantee clause: the Cooperation Agreement provided “on company loss the plaintiff may reclaim RMB 10 million principal plus interest, on profit the plaintiff may keep holding and receive dividends” — enjoying returns without bearing risk, violating the essence of “risk-sharing” in investment and the principle of fairness; under Article 151 of the Civil Code the defendant was entitled to rescind; it also violated public order and should be void.
3. Denying repurchase-object legality: the equity-repurchase clause in the Investment-Cooperation Agreement provided for repurchase by the company itself, not falling within the statutory circumstances of Article 89 of the Company Law (five consecutive profitable years without distribution, merger/spin-off/transfer of principal assets, business-term expiry, etc.); a company repurchase would harm creditors and other shareholders, so the repurchase clause was void; the plaintiff’s act of obtaining RMB 10 million via that void repurchase clause was also void, and its claimed source of the Cooperation Agreement’s investment was unlawful.
4. Factual rescission: WeChat records showed that after the plaintiff demanded repurchase, the defendants agreed to renegotiate the “repurchase” and the parties renegotiated the equity transfer without agreement by the filing of suit — the Cooperation Agreement was factually rescinded.
5. “Elect one” clause defense: Article 4 of the Cooperation Agreement expressly gave the plaintiff the right to choose defendant one or defendant two as the buyer; suing both together meant “neither chosen,” and the claims against both should be dismissed.
6. No basis for lawyers’ fees or preservation fees: the Cooperation Agreement and the Investment-Cooperation Agreement were independent — the former referenced none of the latter’s clauses, had different signing parties, and did not provide that lawyers’ fees be borne by the losing party; preservation and litigation fees also lacked contractual or statutory basis.

Judgment

With the court’s mediation, the parties reached a mediation agreement: the defendants jointly pay the plaintiff the equity-transfer price by installments and cooperate with the equity-change registration; if not performed on time, the plaintiff may apply for enforcement of the agreed amount, interest and lawyers’ fees. The case-acceptance and preservation fees were borne by the defendants. Centering on “defective agreement validity,” the case ended in mediation with an enforceable, low-risk exit plan.

Significance

• A shareholders’ resolution for a company guarantee is a rigid rule: a company’s guarantee for its shareholder or actual controller requires a shareholders’ resolution, and the benefited party may not vote. Without a resolution, the company may claim voidness; if the signing parties knew of other shareholders yet bypassed the procedure, it may also constitute malicious collusion harming a third party, voiding the agreement as a whole.
• Legal risk of “zero-risk minimum-guarantee” investment clauses: a clause providing “principal protected on loss, dividends on profit” in substance turns an investment relation into a lending relation, violating the essence of “risk-sharing” and fairness, and may be rescinded as manifestly unfair or void as against public order. Such minimum-guarantee promises should be avoided in investment agreements.
• The legality boundary of equity-repurchase objects: a clause providing for the company to repurchase a shareholder’s equity must be strictly limited to the statutory circumstances of Article 89 of the Company Law; repurchase clauses beyond those circumstances are void and may invalidate the entire repurchase arrangement in the investment agreement.
• Defenses of rescission and elect-one election: where the parties have renegotiated a core matter (equity-transfer plan) without agreement, the original agreement may be claimed factually rescinded; meanwhile, an “elect one” clause may serve as a procedural defense against multiple simultaneous claims.
• Mediation strategy: use “void agreement” as a bargaining chip to lower the client’s cash pressure: though mediated, counsel built a strong negotiating position with a three-layer defense of “void agreement + improper parties + factual rescission,” forcing the plaintiff to drop from RMB 10 million to RMB 5 million in mediation, while preserving for the defendant the performance pressure of “enforcement per the original claim if not performed” — mediation is not surrender, but exchanging legal advantage for a certain favorable result.
• Corporate-risk note: a company should strictly standardize its external-guarantee procedure — any guarantee for a shareholder, actual controller or affiliate must go through a shareholders’ resolution with written records kept; an actual controller should avoid signing guarantee-related agreements in a personal name, or the company may be forced into joint liability. Also, “principal-protected, interest-guaranteed” promises should be avoided in investment agreements to prevent recharacterization as lending or manifest unfairness.

Case Overview (Anonymized)

• Case number: withheld (per confidentiality); court: Shenzhen Luohu District People’s Court
• Cause of action: crime of selling goods bearing counterfeit registered trademarks (criminal case)
• Defendant: Mr. Chen (manager of the company’s QC department)
• Role: Attorney Kevin Jun Lin acted as defense counsel for defendant Mr. Chen
• Background: a certain technology group (Shenzhen) Co., Ltd. organized the sale of counterfeit branded mobile phones, tablets and laptops, with as many as seventeen persons involved. Mr. Chen was the company’s QC department manager. After the case, Mr. Chen was criminally detained and arrested, held in custody. The first principal (the company’s actual controller) was ultimately sentenced to five years and two months’ imprisonment.

Key Issues

1. Whether this case should be characterized as a unit (corporate) crime or natural-person joint crime — whether Mr. Chen should be deemed management or an ordinary employee performing his duties, and what liability he should bear.
2. Mr. Chen’s status and role in the joint crime — principal or accessory?
3. Whether the leniency system for admitting guilt and accepting punishment applied, and the room for sentencing negotiation.
4. How to combine restitution and compensation with family financial hardship and other sentencing factors to seek a suspended sentence.

Representation Strategy

1. Unit-crime defense: the sales decision was made by the actual controller, implemented in the company’s name, with proceeds into the company account and owned by the company; Mr. Chen was merely an ordinary employee performing his duties for a fixed salary. Arguing the case as a unit crime, Mr. Chen as ordinary staff bears liability far lighter than the directly responsible person in charge or other directly responsible persons.
2. Accessory defense (fallback line): even if not characterized as a unit crime but as joint crime, Mr. Chen initiated no criminal intent, had no decision-making power and no profit distribution, playing only a secondary or auxiliary role, and should be recognized as an accessory and given a lighter or reduced punishment.
3. Leniency for admitting guilt: multiple interviews with the defendant, full communication of rights and consequences, guiding him to voluntarily truthfully confess all facts and sincerely repent, and formally applying for the leniency system under Article 15 of the Criminal Procedure Law.
4. Restitution + family-hardship factors: the family raised funds to surrender the unlawful gains, combined with family financial hardship, first-time and occasional offense, asking the court for a lighter punishment and a suspended sentence.

Judgment

The Shenzhen Luohu District People’s Court sentenced defendant Mr. Chen to three years’ imprisonment, suspended for four years, with a fine of RMB 90,000; the surrendered unlawful gains of RMB 10,000 were confiscated and turned over to the state. Compared with the principal’s five years two months’ actual sentence, Mr. Chen obtained a suspended sentence — counsel successfully downgraded Mr. Chen from principal to accessory, making a sentence below three years (principals get three years or more and cannot obtain suspension) and a suspension possible, so he need not serve in custody and, upon the judgment taking effect, could return to his family and society; the defense objective was fully achieved.

Significance

• Unit crime vs. natural-person crime: the decision made by the actual controller, implemented in the company’s name, with unlawful gains owned by the unit, is the core feature of a unit crime. An ordinary employee’s duty-performing act should be strictly distinguished from the organizer’s liability — the first breakthrough for sentencing stratification in such cases.
• Look to substance in accessory determination: a post employee with no decision power, no profit distribution and only a fixed salary, even if involved for a long time, should be recognized as an accessory and given a lighter or reduced punishment. “Layer-by-layer accountability” does not mean “everyone equally liable.”
• Admitting guilt + restitution is the combo for a suspended sentence: admit guilt and accept punishment early for leniency, combined with best efforts at restitution to show repentance, plus family-hardship factors, to win suspended-sentence room for the client amid an unfavorable pattern of many co-defendants and a heavy principal sentence.
• Employee criminal-risk note: QC, warehouse and customer-service posts are not a “safe zone” — knowingly or should-knowingly handling counterfeit goods while continuing to work may constitute a crime. On discovering anomalies, promptly preserve evidence, stop participating and consult a lawyer early; professional legal help before the first interrogation often decides the case’s direction.