Shenzhen Professional Equity Inheritance Litigation, Dahu Law Firm Recommended Case: Is the Resolution of the Shareholders' Meeting to Reduce the Equity Share of Heirs Invalid? Heirs Inherit Equity

In equity inheritance, the heir and other shareholders and interested parties often use the shareholders' meeting as a platform to try to obtain rights through resolutions while restricting or evendeprivation the rights of others: for example, other shareholders may convene a shareholders' meeting to make resolutions excluding the heir from inheriting the shareholder's qualifications or restricting the exercise of shareholder rights. Attorney Dao Hua Tang Yunhong will use the following case to help all heirs learn how to safeguard their legitimate rights and interests in equity inheritance and obtain the equity they should receive.

Plaintiffs Yu Mou 1 and Yu Mou 2 are the heirs of Chen Mou, who originally held 8.75% of the shares in a department store in Wuhan City. The department store in Wuhan City (hereinafter referred to as the department store in Wuhan City) was originally a state-owned enterprise, which was restructured into a cooperative stockholding enterprise in 2001, with a total capital of 160,000 yuan, all of which were individual shares held by employees. In October 2008, Chen Mou passed away, and according to his will, the shares were inherited by Yu Mou 1 and Yu Mou 2.

On January 14, 2012, a department store in Wuhan City held another shareholders' meeting, adjusting Chen's shares to 6.75% according to the revised articles of association, while Yu No.1 and Yu No.2 still did not attend or sign.

On September 20, 2018, a department store in Wuhan City held a shareholders' meeting to intend to cease the business operations of the Gutian Department Store, cancel the business license, and dissolve the shareholder relationship between Yu No.1 and Yu No.2. Yu No.1 signed an opinion requesting the disclosure of the accounts and disagreed with the dissolution of the shareholder status. Subsequently, disputes arose over issues such as equity shares and the sale of office rooms, and Yu No.1 and Yu No.2 filed a lawsuit with the court, requesting the invalidation of the shareholders' meeting resolution, confirmation of their 8.75% equity share, and the right to review relevant house sale accounts.

Second, the judgment result

The court judgment: Confirms the invalidity of the shareholders' meeting resolution; confirms that Yu Mo 1 and Yu Mo 2 jointly hold 8.75% of the shares in Wuhan's certain department store; the certain department store in Wuhan is required to provide relevant house sale account books for review within a specified time limit.

Section 3: Dao Hua Analysis

Guangdong Dao Hua Law Firm - Director of the Dao Hua Marriage and Family Law Team, Chief Lawyer Tang Yunhong, based on many years of successful experience in inheritance litigation, raises the following questions, and provides solutions and plans:

What are the criteria for recognizing the effectiveness of the shareholders' meeting resolution?

The effectiveness of the shareholders' meeting resolution must be considered from both procedural and content aspects:

1. In terms of procedure, according to Article 41 of the Company Law of the People's Republic of China, shareholders' meetings should be notified to all shareholders fifteen days before the meeting is held. In this case, a certain department store in Wuhan City held two shareholders' meetings without notifying Yu No.1 and Yu No.2 15 days in advance, which violated the statutory procedure.

2. In terms of content, the shareholders' meeting resolution may not violate the provisions of laws and administrative regulations. In the shareholders' meeting resolution of a certain department store in Wuhan on January 14, 2012, based on the amended articles of association, it directlydeprivation Chen Ren's part of the equity without any compensation, infringing upon the legitimate property rights and interests of the heirs and violating the provisions of the "Property Law of the People's Republic of China" on the protection of citizens' legitimate property. Therefore, the content of the resolution is invalid.

At the same time, although Article 4 of the "Provisions of the Supreme People's Court on Certain Issues Concerning the Application of the Company Law of the People's Republic of China" stipulates that if the procedural or voting method of a meeting has only minor defects and does not have a substantial impact on the resolution, the court shall not support the request for revocation, in this case, the shareholders' meeting failed to notify the shareholders 15 days in advance, which is not a minor defect and has a substantial impact on the shareholders' exercise of rights, therefore, the provisions of this clause cannot be applied.

What are the rules for determining the equity ratio in the inheritance of shareholder qualifications?

According to Article 12 of the regulations formulated by a department store in Wuhan City in June 2001, the shares held by employees are allowed to be inherited internally within the company. After Chen Ren's death, Yu Mo 1 and Yu Mo 2 legally inherited the equity based on his will, which is in accordance with the regulations. The shareholders' resolution made by the department store in Wuhan City on January 14, 2012, is invalid and cannot change the equity ratio, therefore, Yu Mo 1 and Yu Mo 2 should jointly hold 8.75% of the shares.

Chapter 4: Legal Index

1. "The Company Law of the People's Republic of China"

Article 22: Resolutions of the shareholders' meeting or general shareholders' meeting, or the board of directors, that violate laws or administrative regulations are invalid. If the procedure for convening the meeting of the shareholders' meeting or general shareholders' meeting, or the board of directors, violates laws, administrative regulations, or the company's articles of association, or if the resolution content violates the company's articles of association, shareholders may request the people's court to revoke the resolution within sixty days from the date of the resolution.

Article 33: Shareholders have the right to examine and copy the company's articles of association, minutes of the shareholders' meetings, resolutions of the board of directors, resolutions of the board of supervisors, and financial and accounting reports. Shareholders may request to examine the company's accounting books. If shareholders request to examine the company's accounting books, they shall submit a written request to the company, stating the purpose. If the company has reasonable grounds to believe that the shareholder examining the accounting books has an improper purpose that may harm the legitimate interests of the company, it may refuse to provide the examination and shall provide a written reply to the shareholder within fifteen days from the date of the shareholder's written request, stating the reasons. If the company refuses to provide the examination, the shareholder may request the People's Court to order the company to provide the examination.

Article 41: The shareholders' meeting shall be notified to all shareholders fifteen days before the meeting is held; however, exceptions may apply if the articles of association provide otherwise or if there is an agreement among all shareholders. The shareholders' meeting shall make a record of the decisions on the matters discussed, and shareholders attending the meeting shall sign the record.

Article 75: After the death of a natural person shareholder, their legal heirs may inherit the shareholder qualifications; however, exceptions are made if the company's articles of association provide otherwise.

2. The Supreme People's Court on Several Issues Concerning the Application of the "Company Law of the People's Republic of China" (Regulation IV)

Article 7: If shareholders file a lawsuit according to Article 33, Article 97 of the Company Law, or the provisions of the company's articles of association, requesting to inspect or reproduce specific documents and materials of the company, the people's court shall accept the lawsuit in accordance with the law. If the company has evidence to prove that the plaintiff specified in the preceding paragraph does not have the qualification of a shareholder at the time of filing the lawsuit, the people's court shall reject the lawsuit, except when the plaintiff has preliminary evidence proving that their legitimate rights and interests were damaged during the holding period, and requests to inspect or reproduce the specific documents and materials of the company during the holding period.