China Equity Succession for Foreign Shareholders: Inheriting and Transferring Company Shares

Two questions the heirs must separate

When a shareholder of a Chinese company dies, the family usually asks one question — "who gets the shares?" — and Chinese law actually answers two different questions. The first is who inherits the economic value of the shares, the property right to the equity. The second is who takes the shareholder's seat: the right to vote, to attend shareholders' meetings, to be registered on the company's books as a member. The Civil Code governs the first question. The Company Law governs the second. They do not always give the same answer, and a foreign family that treats them as one question will often pay for the confusion twice — once in the probate, and once inside the company.

Who inherits: the Civil Code and the choice-of-law rule

The default inheritance rules sit in the Civil Code (effective 1 January 2021). The estate is defined in Article 1122; the statutory order of succession is in Article 1127 — first-order heirs are the spouse, children and parents, and second-order heirs are siblings and grandparents, who take only if there is no first-order heir. Article 1133 allows a will or a bequest, so a valid will can override the statutory order. For a foreign shareholder the more important rule is the choice-of-law provision. Under Article 31 of the Law on the Application of Law to Foreign-Related Civil Relations, statutory succession is governed by the law of the deceased's habitual residence at the time of death; succession to immovable property is governed by the law of the place where the property is located. Equity in a company is movable property, so the habitual-residence law — not the nationality law — controls a shareholder who died without a will. A foreign national who was habitually resident in China therefore dies into Chinese succession law for those shares; a Chinese shareholder habitually resident abroad dies into the law of that residence. Getting this right at the outset determines which court or notary has jurisdiction over the whole exercise.

Whether the heirs take the seat: Company Law Article 90

The seat question is answered by the 2023 Company Law (effective 1 July 2024). Article 90 (for a limited liability company; Article 167 for a company limited by shares) provides that on the death of a natural-person shareholder, the lawful heirs may inherit the shareholder qualification — unless the company's articles of association provide otherwise. Two points in that single sentence do most of the work. First, the default is inheritance of the qualification itself, not merely the economic value: the heir steps into the seat unless the articles have excluded it. Second, the articles can change the default. A company may validly provide that shares do not pass to heirs at all, or that heirs receive only the value of the shares after a buyout — which is why the articles of association is the single document a family should read before anything else. Note the drafting trap: the old 2005 and 2018 Company Law put this rule in Article 75; the 2023 revision renumbered it to Article 90, and a document that still cites Article 75 is citing a provision that no longer exists.

What the articles can and cannot do

The line that matters is between the seat and the value. The articles of association can restrict or exclude the inheritance of the shareholder qualification — that is the "unless otherwise provided" carve-out in Article 90. What they cannot do is strip the heirs of the economic value of the shares; the shares are estate property, and the company cannot confiscate them. In practice a well-drafted set of articles, or a shareholders' agreement, will specify one of three outcomes: the heirs take the seat; the heirs take the value and the shares are transferred to the remaining shareholders or a third party at an agreed or appraised price; or the heirs may take the seat only with the approval of the other shareholders. The Judicial Interpretation IV of the Company Law (Article 16) adds a useful boundary: when equity changes hands by inheritance, the other shareholders' pre-emptive right to purchase generally does not apply — unless the articles or a unanimous agreement provide otherwise. A family negotiating the transfer should know which of these three outcomes the documents actually select, because it changes whether the heirs are joining a company or settling a price.

Getting the shares through the Chinese system

The procedural chain for a foreign heir is, in order: prove the death and the relationship, establish the succession, and then record the change. Since 7 November 2023 China has applied the Hague Apostille Convention, so a foreign death certificate or will that would previously have needed consular legalisation now generally needs only an apostille — a meaningful shortening of the process, though the receiving Chinese authority may still require a Chinese translation and may ask for notarisation of the inheritance itself. The succession is then confirmed through a notarial certificate of succession (继承权公证书) or, where the heirs cannot agree, a court judgment. With that in hand, the company applies to the market regulator to record the change of shareholder, updating the business registration. If the inherited shareholding changes actual control of a company in a sensitive sector, foreign-investment rules may require a further look, so the registration step should not be treated as automatic. For the estate administration side of the same problem, see China Cross-Border Estate Administration: Probating a Foreign Will over Chinese Assets, and for the documents that foreign families need recognised, China Estate Planning and Wills for Foreigners with Chinese Assets.

Tax: no estate tax, but a 20% hit on a later sale

One point deserves to be stated plainly: China does not currently levy an inheritance tax, and the inheritance of shares is not itself a taxable event for the heir. The tax arrives later. If the heir sells the inherited shares, the gain is taxed as income from property transfer at 20%, calculated on the difference between the sale price and the original acquisition cost carried over from the deceased. The practical consequence is that families deciding whether to keep or sell inherited equity should model the deferred 20% before committing to a transfer, and should preserve the acquisition-cost records that will reduce the taxable gain when a sale eventually happens. For the surrounding structure, see China Individual Income Tax for Foreigners: Residency Rules and Expat Planning.

Practical points for a foreign family

• Read the articles first. The single most decisive document is the company's articles of association — it determines whether the heirs take the seat or only the value.
• Fix the governing law early. Equity is movable property, so succession follows the deceased's habitual residence at death, not nationality — confirm which law and which forum actually control before filing anything.
• Cite the current provisions. It is Article 90 of the 2023 Company Law, not the repealed Article 75.
• Use the apostille route. Since November 2023, a foreign death certificate or will generally needs an apostille rather than consular legalisation, with translation still required.
• Budget the deferred tax. No estate tax, but a 20% capital-gain charge on a later sale of inherited shares — preserve the cost basis now.

How Tianni Law Firm Can Help

Tianni Law Firm (江苏天倪律师事务所), based in Nanjing, Jiangsu, advises foreign families and shareholders on Chinese equity succession — reading the articles of association against the 2023 Company Law, confirming the governing law and forum, running the notarial succession and market-regulator registration, and structuring the later transfer so the deferred 20% tax is managed rather than discovered. This article is general information, not legal advice; the Company Law, the Civil Code and the choice-of-law rules are applied in practice case by case, so confirm the current official texts and the facts of the specific estate before acting.