It is very common that a shareholder of a company has no formal management positions in the company. Legally speaking, a shareholder has a right to keep up to date with the operation and management of the company by attending the meetings of the Board of Directors. However, many companies do not hold a formal board meeting regularly as required by law. Under such circumstances, shareholders not holding management positions with the company may have problems in obtaining accurate operational and management details of the company.
For many a shareholder in this which finds themselves shutout in a dispute, the first inclination is to litigate. While a shareholder may enforce rights via litigation this is of course a costly option. But before filing a lawsuit to the court, a shareholder should take the following steps:
First, you need to know that what kind of information you are entitled to obtain as a shareholder. Generally speaking, a shareholder to a company is entitled to consult and make a copy of the company’s Articles of Association, Minutes of Meetings of the Board and of Shareholders, Resolutions of Meetings of the Board of Directors, Resolutions of Meetings of the board of supervisors and financial reports, and also entitled to consult the accounting books of the company.
Second, before filing a case directly at a court with jurisdiction, a shareholder will need to make a formal request to obtain the operation and management information to the company in writing. You are also required to explain the purposes for obtaining such information. And the company is obligated to give you an answer in writing within 15 days after receiving your written request. If the company refuses your request, then you are entitled to file a lawsuit. Note that if you file a case without making a written request in advance, the court will not accept your case.
After making your written request and receiving the refusal or receiving no response within 15 days, a Shareholder is entitled to file the case at the district court where the company is registered.
After obtaining a favorable result at court, the shareholder may appoint a China Lawyer or accountant to review the company records on behalf of the shareholder. Lehman, Lee & Xu has much experience acting on behalf of foreign shareholders to enforce such rights against their own WFOE’s, in addition to having the professional legal and accounting staff in house to conduct a thorough forensic review of the company’s operations and accounts after access is gained.