China Shareholder Disputes: Legal Remedies for Foreign Investors

The governing law

Shareholder disputes in China are governed primarily by the PRC Company Law, most recently revised on December 29, 2023 and effective July 1, 2024 (the "New Company Law"). For foreign-invested enterprises, the Foreign Investment Law (effective January 1, 2020) aligned FIEs with the Company Law and gave existing FIEs a five-year transition to adjust their governance — a transition that expired on December 31, 2024. Since January 1, 2025, an FIE that has not converted its governance structure may find its change-of-registration applications refused by the market regulator, which matters directly when a dispute reaches the registry.

Information rights are usually the first step

Before suing, a minority shareholder usually needs documents. Under Article 57, a shareholder of a limited liability company may inspect and copy the articles of association, the register of shareholders, minutes of shareholders' meetings and board and supervisory-board resolutions, and the financial reports. The New Company Law added the right to request inspection of the accounting books and accounting vouchers, on a written request stating the purpose; the company may refuse on stated grounds and must reply in writing within 15 days, and a refusal can be challenged in court. For a joint-stock company, Article 110 requires a shareholder to have held 3% or more of the shares for at least 180 consecutive days to inspect the books (the articles may set a lower threshold).

Challenging shareholder and board resolutions

• Void (Article 25): a resolution whose content violates law or administrative regulations is void.
• Voidable (Article 26): a resolution with defective convening or voting procedure, or whose content violates the articles, may be revoked within 60 days of the resolution (or within 60 days of the shareholder learning of it if not notified), and in any event within one year.
• Non-existent (Article 27): a resolution is deemed not to exist where no meeting was held, the matter was not voted on, or the quorum or approval thresholds were not met.

Derivative suits (Article 189)

Where a director or officer harms the company, a shareholder may first demand in writing that the supervisory board (or board of directors) sue. If the body refuses, fails to act within 30 days, or the situation is urgent, the shareholder may sue in the company's name. The New Company Law also introduced a "double derivative suit": a shareholder may pursue claims on behalf of a wholly-owned subsidiary. For a limited-liability company there is no minimum shareholding; for a joint-stock company a shareholder must have held 1% of the shares for at least 180 consecutive days.

Exit remedies: buy-out and judicial dissolution

Article 89 lets a dissenting shareholder require the company to buy back its equity at a fair price in defined situations — for example, where a profitable company has failed to distribute profits for five consecutive years while meeting the conditions for distribution, or upon a merger, division or sale of major assets. The New Company Law added a third situation: where a controlling shareholder abuses its rights and seriously harms the company or other shareholders, the other shareholders may demand a buy-out. If no price is agreed within 60 days of the resolution, the shareholder may sue within 90 days.

Judicial dissolution under Article 231 is the remedy of last resort: it requires serious difficulty in the company's operation, material harm to shareholders' interests if it continues, and no alternative remedy, and only a shareholder holding 10% or more of the voting rights may apply. Courts remain cautious, so it is usually reached after negotiation and a buy-out claim have failed. Our firm also handles the underlying mergers and acquisitions disputes that often trigger these claims.

Practical steps for a foreign investor

• Confirm the FIE's governance has been converted under the new Company Law — an unconverted entity complicates every remedy.
• Exercise information rights first and preserve the written request and the company's reply.
• Mind the short deadlines: 60 days and one year for voidable resolutions, 90 days to sue after a failed buy-out negotiation.
• For derivative suits, complete the written demand to the supervisory board or board first unless the matter is urgent.