Shareholder Rights Under China’s New Company Law: Practical Guidance and Early Observations

In the  2024 Chambers Trends & Developments article, T&C Law Firm analysed the amendments to the PRC Company Law (the “New Company Law”) from a statutory perspective, focusing on how the revised provisions expanded shareholder rights, lowered thresholds for shareholder actions, and introduced new remedies.

Since the New Company Law came into effect on 1 July 2024, it has begun to shape corporate practice. While reported cases remain relatively few, the legislation has already generated significant discussion among courts, practitioners, and academics. These early judicial indications and expert interpretations offer important insights into how the new provisions may operate in practice.

This year’s article, therefore, moves beyond textual comparison to practical application. Drawing on emerging judicial commentary, expert opinions, and a few illustrative cases, the aim is to provide guidance to the shareholders – particularly minority shareholders – on how to exercise and safeguard their rights effectively under the new regime.

Strengthening shareholder rights before disputes arise

Expanded scope of shareholder information rights

Under the previous law, minority shareholders frequently faced limited inspection rights and inconsistent judicial enforcement. Article 57 of the New Company Law addresses these concerns by expanding and clarifying shareholder information rights. Shareholders are now expressly entitled to inspect and copy the shareholder register, enabling them to verify equity structures and track changes in shareholding. Additionally, shareholders may review the company’s accounting vouchers and financial records.

In practice, shareholders should be mindful of the scope of their information rights. While shareholders are permitted to take notes or make excerpts from accounting records, such extracts must remain within a reasonable scope and proportional to the purpose of inspection; in other words, one-to-one reproduction of the original records is generally not allowed.

A further point of contention in judicial practice concerns whether supporting materials attached to the original vouchers and kept for record-keeping purposes fall within the right to information. One judicial view holds that, under the PRC Accounting Law, “accounting vouchers” comprise only original vouchers and bookkeeping vouchers, and therefore, such supporting materials are not part of the statutory inspection scope. This position often involves balancing the shareholders’ right to information against the need to protect the company’s trade secrets. Given that post-amendment case law remains limited, further judicial clarification on this issue is anticipated.

In enforcement, courts have required non-compliant companies to prepare specified electronic accounting records – including the general ledger, subsidiary ledgers, journals, and auxiliary ledgers – for on-site review within three business days. Persistent refusal may result in fines or consumption restrictions on the company’s legal representative. In practice, where the parties have a dispute over matters of enforcement – such as the timing or scope of execution – the enforcement court has the authority to resolve the disagreement by organising both parties to inspect the relevant company documents at a fixed time and place.

Improved rights to submit proposals and convene meetings

The New Company Law refines both the shareholder proposal right and the right to convene shareholders’ meetings. First, it lowers the shareholding threshold required to submit a proposal. For public companies, the minimum shareholding for shareholders to put forward an interim proposal has been reduced from 3% to 1%. This significantly lowers the barrier for minority shareholders to exercise their proposal rights, enabling greater participation in corporate governance. The change is particularly meaningful in listed companies, where shareholding is often widely dispersed, making it easier for minority shareholders to initiate proposals.

Second, the new law clarifies the procedures and time limits for convening a meeting. Under Paragraph 3 of Article 114, shareholders holding 10% or more of the company’s shares – whether individually or in aggregate – may request that an interim shareholders’ meeting be convened. The board of directors or the board of supervisors shall, within ten days of receiving such a request, decide whether to convene the meeting and provide a written reply to the requesting shareholders. This provision outlines explicit procedural and timing requirements, thereby reducing the risk of delays by the board or supervisory board.

Following the introduction of these provisions, there have already been cases of shareholders holding less than 3% of the shares submitting interim proposals. For example, on 12 May 2025, the board of KLT received an interim proposal from a shareholder holding 2.14% of the company’s shares, proposing to terminate a restricted stock incentive plan. After verifying compliance with statutory requirements and the articles of association, the board placed the proposal on the agenda of the annual general meeting – demonstrating the tangible impact of the reduced threshold.

In practice, shareholders should take note of several key points. First, any shareholder holding at least 1% of the company’s shares, individually or in aggregate, may submit an interim proposal. “Aggregate holding” can arise where multiple shareholders act jointly or where one shareholder publicly solicits proposal rights from others.

Second, proposals must comply with the timing requirement: eligible shareholders may submit an interim proposal in writing to the board of directors no later than ten days before the scheduled date of the shareholders’ meeting. There are different calculation methods used in practice for determining this ten-day deadline, and the law does not prescribe a specific approach. Companies should adopt the method best suited to their circumstances, record it in their internal governance rules, and apply it consistently in future operations. Shareholders, in turn, should ensure their proposals are submitted in accordance with the adopted calculation method to avoid procedural challenges.

Facilitating meetings via electronic communication

Article 24 of the New Company Law expressly provides that a company may convene shareholders’ meetings, board meetings, and supervisory board meetings, and conduct voting through electronic communication. The introduction of this mechanism facilitates shareholder participation in decision-making, reduces participation costs, and broadens the scope of shareholder involvement.

Shareholders should be aware that the term “electronic communication” should be interpreted to mean real-time, interactive methods that replicate the immediacy of in-person meetings. At least two participants must be able to exchange text or image messages and engage in simultaneous voice or video interaction via the internet or mobile technology. Fax and email – which do not provide real-time interaction – are not suitable, as they risk conflating electronic meetings with written resolutions made without a meeting.

Despite the flexibility of electronic communication, procedural requirements remain critical. Companies must ensure compliance with statutory requirements and the articles of association governing notice, quorum, and voting procedures. Advance notice of the meeting and agenda must be served lawfully, and the process must ensure that all shareholders – especially minorities – can effectively exercise their rights to information, questioning, and voting. The articles of association should specify acceptable electronic methods, verification procedures, and record-keeping requirements to minimise the risk of defective resolutions.

Remedies available after rights have been infringed

Improved mechanism for shareholders’ derivative action

Paragraph 4 of Article 189 of the New Company Law introduces the double derivative action, allowing shareholders of a parent company to bring proceedings in their own name to protect the interests of a wholly owned subsidiary where the subsidiary’s board of directors or supervisory body refuses or fails to act.

This mechanism is designed to counter a common tactic in practice whereby a controlling shareholder suppresses minority shareholders by transferring assets and diverting benefits through a wholly owned subsidiary. At the parent level, minority shareholders may hold veto rights over major matters such as capital increases or reductions, making it difficult for the controlling shareholder to push through certain transactions. By establishing a wholly owned subsidiary, however, the controlling shareholder gains complete control over the subsidiary’s decision-making, free from minority oversight. With the introduction of the double derivative action, minority shareholders who detect harm to the subsidiary’s interests can now “pierce” the corporate structure and seek relief directly. In practice, minority shareholders seeking to protect their rights should pay close attention to the following matters.

• Scope of application – The remedy is strictly limited to wholly owned subsidiaries. Even where the parent company holds more than 99% of the equity, the statutory standing for a double derivative action is not satisfied unless the parent entirely owns the subsidiary. This narrow drafting is intentional: it focuses the remedy on structures most susceptible to abuse and least likely to be policed through internal governance mechanisms.
• Standing and timing – Eligibility depends on a shareholder’s status at the time of filing, rather than when the alleged misconduct occurred. In other words, a plaintiff who acquires shares in the parent company after the harmful act took place may still bring a claim for conduct that damaged the subsidiary before they became a shareholder, provided that the harm continues or its consequences persist after they acquired shareholder status.
• Litigation strategy – In court proceedings, disputes often centre on the evidentiary thresholds for establishing “continuing infringement” and proving a governance deadlock within the wholly owned subsidiary; thus, it would be beneficial to focus on securing evidence in three key areas:
1. a precise timeline of the impugned acts (eg, contract execution date, fund transfer date);
2. documentary proof that written requests for action were submitted to both the parent company’s and subsidiary’s governance bodies; and
3. materials that establish the causal link between the subsidiary’s loss and the shareholder’s loss.

Expanded right to exit

Article 89 expands the right to exit for shareholders of limited liability companies by introducing an oppression-based redemption mechanism alongside traditional rights to exit. When a controlling shareholder misuses their rights in a way that seriously harms the company or other shareholders, an affected shareholder may demand that the company buy back their shares at a fair price.

Judicial application remains cautious. Reported judgments expressly applying Article 89 are not yet available, and courts are sensitive to the implications of a forced redemption for capital maintenance, internal shareholding balance and creditor protection. Early signals suggest that “abuse” will be confined to conduct marked by bad faith, improper extraction of benefits or deprivation of basic shareholder rights, rather than ordinary business decisions taken with procedural regularity. Many oppression claims stumble on proof: plaintiffs often fail to demonstrate an improper purpose, conduct beyond the bounds of normal commercial judgment, or a substantive breach of duties of loyalty and good faith. In a recent case, the court emphasised that redemption relief is a last resort, encouraging shareholders first to exercise information rights, inspect accounts and seek damages where appropriate.

Strengthened accountability for controlling shareholders and actual controllers

For corporate governance in China, controlling shareholders and actual controllers often influence corporate decision-making through informal channels, even when they hold no formal office, such as directors or senior managers. This behind-the-scenes control can steer strategy and operations while avoiding the statutory duties and liabilities imposed on formal officeholders. The New Company Law seeks to close this governance gap.

Article 192 strengthens accountability by expressly extending liability to controlling shareholders and actual controllers who instruct directors or senior officers to take action that harms the company’s interests. In such circumstances, the controller may be jointly and severally liable alongside those who acted on the instructions, effectively bringing “shadow controllers” within the director-liability framework and expanding the potential defendant pool in shareholder litigation.

The statute does not restrict how an instruction may be given. Instructions may be oral or written, formal or informal. Communications in non-official messaging channels can qualify, and even where there is no explicit directive, an implied instruction may suffice if it is sufficiently clear and specific. Courts will focus on effect: whether the directive carried a degree of compulsion or authority that overrode independent judgment and enabled the controller to achieve complete or near-complete control in the relevant decision. Habitual conduct is not required; a single decisive instruction can trigger liability if it causes harm. Nor must the control extend to every corporate matter – exerting decisive influence over key strategic or operational decisions can be enough.

Although reported cases directly applying Article 192 to “shadow directors” are not yet available, academic commentary suggests a substance-over-form approach. The likely judicial inquiry will ask whether the controller’s involvement was decisive in the outcome, whether the instruction was capable of binding the decision-maker, and whether the resulting harm is sufficiently linked to the instruction. For minority shareholders, Article 192 opens an additional avenue to hold de facto controllers to account. For controllers, it heightens the compliance imperative: informal influence must align with fiduciary standards and the company’s best interests, and governance records should reflect genuine board deliberation rather than deference to extra-board instructions.

Litigating defective resolutions

Under the prior framework, procedural irregularities in convening or voting at shareholders’ or board meetings often led to revocation of resolutions, even where the defects had no real bearing on the outcome. The New Company Law introduces a more measured approach by recognising a minor-defects exemption: where the convening procedure or voting method suffers only minor irregularities that do not have a substantive impact on the resolution, revocation is not warranted.

The assessment is fact-sensitive. In practice, three questions guide the analysis. First, is the problem confined to procedural aspects of convening or voting rather than substantive voting rights or eligibility? Second, did the irregularity impair fair participation – for example, by denying shareholders adequate information or a fair opportunity to be heard? Third, is there evidence that the irregularity altered the outcome or undermined the legitimacy of the decision? Where the answers tend toward “no”, courts are likely to treat the defect as minor.

Two illustrations show the contrast. In one instance, a company’s legal representative circulated a notice one day in advance through a shareholder’s WeChat group. A shareholder refused to attend, objecting to the agenda. At the meeting, holders of 90% of the voting rights participated and unanimously approved the resolution. The court acknowledged non-compliance with the statutory notice period but found no substantive prejudice and declined to revoke the decision. By contrast, where a company physically prevented a shareholder from attending a meeting, the resolution was revoked even though the excluded votes could not have changed the result; the court regarded the exclusion as a serious violation of participation and voting rights that went to the heart of corporate democracy. For businesses, the lesson is clear: while the new approach provides some protection against opportunistic challenges, maintaining procedural integrity is crucial. For shareholders, recognising the difference between minor and significant defects is essential for developing an effective litigation strategy.

Conclusion

The first year of the New Company Law represents an important step in strengthening shareholder protections in China. Enhanced information rights, lower proposal thresholds, electronic meeting mechanisms, the double derivative action, and an expanded right to exit have together laid the foundation for a more balanced governance framework.

That said, illustrative cases interpreting these provisions remain limited. Much of the current understanding is based on expert commentary, early judicial indications, and practical observations. As a result, many issues – such as the precise scope of accounting inspection rights or the evidentiary thresholds for derivative actions – await further clarification through practice.

For now, the value of the amendments lies in providing practical guidance on how shareholders and companies can structure governance and prepare for disputes. Shareholders must pay close attention to procedural requirements, evidence preservation, and timing considerations to invoke these rights effectively. Companies, in turn, should update their articles of association, refine meeting procedures, and embed compliance with statutory requirements to mitigate risk.

Looking ahead, while further judicial practice is required to define the contours of these rights, the New Company Law already provides a practical framework – one that both minority and controlling shareholders should internalise in day-to-day governance.