I. Introduction. At the beginning of 2023, the actual controller and chairman of a listed company passed away. In order to fill the vacancy of directors, the company held an extraordinary general meeting of shareholders and voted to approve the proposal to elect the son of the original actual controller as a director of the company. However, the extraordinary general meeting of shareholders was questioned by the widow of the original actual controller, and at the same time, the widow claimed that she should become the actual controller of the company based on the inheritance relationship. According to the company's announcement, the widow sued and applied to freeze the company's equity in the name of the original controller. Subsequently, with the convening of the company's annual general meeting of shareholders, the meeting passed the proposal to elect the widow as the company's director, and the court lifted the freezing of the company's equity under the name of the original actual controller, and the battle for control in the company's equity inheritance finally ushered in a turning point.
Through the above-mentioned dispute over the estate of the actual controller of the listed company, it can be found that the struggle for control of the company is the core of the equity inheritance dispute. As the authority of the company, the shareholders' meeting often becomes a "battlefield" for the competition for control of the company between the heirs or other shareholders in the equity succession, and the relevant stakeholders often use the shareholders' meeting to try to give their own rights and restrict or even deprive the other party of their rights: for example, the heir convenes a shareholders' meeting and passes a resolution confirming that he has the identity of a shareholder, serves as a director, supervisor or senior officer of the company, or has the right to keep the license; Other shareholders convene a shareholders' meeting and pass a resolution to exclude the successor from inheriting the shareholder qualification or exercising shareholder rights. A seemingly unremarkable resolution of the shareholders' meeting, but between the lines, there is a fierce struggle and competition between various stakeholders for the control of the company. This article intends to analyze the legal risks of equity succession litigation from the perspective of shareholders' meeting resolution disputes, the types of resolutions and related legal issues involved in the company's control struggle in equity inheritance.
2. Types of disputes involving the resolution of shareholders' meetings over the control of the company.
In practice, the heirs of the decedent shareholders or other shareholders of the company may compete for control of the company by convening a shareholders' meeting of the company and voting on a resolution. In order to ** the types of resolutions and related legal issues related to the struggle for corporate control in equity inheritance, the lawyer team conducted a case search with "Article 22 of the Company Law" and used "inheritance" as the keyword, and retrieved a total of 159 judgment documents with the judgment date from October 2020 to September 2023, and eliminated the irrelevant cases.
The first- and second-instance judgments were combined, and there were a total of 30 valid cases. Through the combing of the resolutions involved in the case, the types of resolutions involved in the struggle for control of the company in the succession can be roughly divided into three types: the struggle for the identity of shareholders, the struggle for personnel rights and the struggle for the control of licenses, as follows:
1) Shareholder identity contention.
Obtaining the identity of a shareholder of the company is the basis for participating in the operation and management of the company and enjoying the rights and interests of the company's assets and returns, and the struggle for control of the company in equity inheritance is first reflected in the struggle for the identity of the shareholder
1.Heirs compete for shareholder status.
In practice, when other shareholders refuse to cooperate with the succession, the successor may try to convene a shareholders' meeting on the qualifications of the successor shareholder and pass a resolution to obtain shareholder status. For example, in the (2020) Liao 02 Min Zhong No. 8627 company resolution revocation dispute: after the death of the company's controlling shareholder Jin, his spouse Li proposed and convened a shareholders' meeting on equity inheritance and changing the company's legal representative and executive director from Jin to Li. Subsequently, Zhang, a minority shareholder of the company, requested to revoke the resolution of the aforesaid shareholders' meeting on the grounds that Jin's heirs had not obtained the status of a shareholder and had no right to convene an extraordinary shareholders' meeting, and the trial court ruled to reject Zhang's litigation claim.
2.Other shareholders compete for shareholder status.
In addition to the fact that the heirs may compete for shareholder status through the shareholders' meeting, other shareholders may also try to exclude the heirs from obtaining shareholder status through the shareholders' meeting. For example, the lawyer team mentioned a dispute over the record of shareholders in the third article of the series - General Provisions of the Dispute over the Control of the Company[1]: after the death of Song, who held 2% of the company's equity, the shareholders with a total shareholding ratio of more than two-thirds passed a resolution of the shareholders' meeting: 1) did not agree to the succession of Song's heirs to the shareholder qualifications; 2) Agree that Song's equity will be transferred by shareholder Luo; 3) The equity transfer money shall be handled by Song's heirs. Thereafter, Song's heirs sued the company to record his name in the company's register of shareholders and change the registration, and the company defended the resolution passed by the majority of the shareholders on disagreeing with Song's heir's inheritance of shareholder qualifications. The basis for this defense is that, according to the provisions of the Company Law[2], the shareholders' meeting may make a resolution to amend the articles of association upon the approval of shareholders representing more than two-thirds of the voting rights, and the articles of association may restrict the succession of shares. However, if the above-mentioned defense was accepted, it was obviously not conducive to the protection of the inheritance rights of the heirs of the minority shareholders of the company, and the trial court did not accept the company's defense, holding that the resolution of the shareholders' meeting involved in the case could not form the effect of amending the articles of association, and supported the successor's claim for inheritance of shareholder qualifications.
In addition to the resolution to exclude the succession of a specific heir from the shareholder qualifications, in practice, there are also cases where other shareholders directly amend the rules on equity succession in the articles of association after the death of the decedent shareholder to exclude the heir from obtaining the status of a shareholder[3]. What's more, some shareholders transfer the equity held by the heirs to themselves by forging the signatures of the deceased shareholders and forming a false shareholders' meeting resolution without the consent of the heirs[4], in this case, the exercise of the right of relief by the heirs may involve judicial appraisal of the authenticity of the handwriting and seal, or the time of formation.
2) Struggle for personnel rights.
In practice, the shareholders of a company, especially the controlling shareholder, often control the company's personnel rights through the election of directors and supervisors by the shareholders' meeting[5] and the selection of managers by the board of directors[6], so as to achieve control over the company's operation and management[7].
In the case of equity succession, the heirs and other shareholders may also elect the directors, supervisors, senior officers and legal representatives of the company through the shareholders' meeting to compete for personnel rights. For example, in the case (2021) E 01 Min Zhong No. 1681, Chen held GT Company 875% of the equity and served as a director of the company, in October 2008, Chen passed away, and he made a will to inherit the equity of GT Company by his spouse and son. Subsequently, the company held shareholders' meetings in November 2011 and January 2012 respectively without notifying Chen's successors, and passed a resolution to remove Chen as a director and adjust Chen's shareholding ratio to 675%, and then Chen's heirs sued the court to confirm the invalidity of the aforesaid two resolutions, and the trial court held that the resolution of the shareholders' meeting involved in the case infringed on the rights and interests of Chen's heirs, so it confirmed that the resolutions were invalid.
3) Struggle for control of licenses.
In addition to the struggle for the identity of shareholders and personnel rights, the parties in the equity succession may also compete for seals and other certificates that can represent the will of the company due to conflicts of interest.
For example, in a case in which the second spouse of the decedent shareholder competed with the daughter of the first spouse of the decedent for control of the company's license through a resolution of the shareholders' meeting[9], the shareholders of the company were the decedent He X (holding 90% of the shares) and the daughter of the first spouse, He X 1 (holding 10% of the shares). After the death of He, his second spouse Liang and his children each inherited 18% of the equity of He (a total of 54%), He 1 inherited 18% of the equity and held 28% of the shares, and the remaining 18% of the equity was inherited by another illegitimate daughter of He. After the death of He, his second spouse Liang and other three people held a shareholders' meeting of the company and passed a resolution: 1) to change the company's executive director and legal representative from He to Liang; 2) Abolish the first set of official seals filed and engraved at the time of the establishment of the company, use the second set of official seals filed and engraved after the death of Mr. He, and retroactively recognize the validity of the second set of official seals signed by the external parties before the resolution is formed. After the resolution was made, Liang and others filed a lawsuit for the return of licenses against He X 1 on behalf of the company, demanding that he return all the company's licenses, and He X 1 filed a counterclaim to confirm the invalidity of the aforesaid shareholders' meeting resolution on the grounds that the equity inheritance lawsuit between him and Liang and the others was still being heard, and the shareholder identity and equity ratio of Liang and the other three had not yet been determined and could not exercise their shareholder rights. After trial, the court held that the convening procedure and content of the shareholders' meeting involved in the case were legal and valid, so it ruled that He X 1 should return the company's license and reject his counterclaim.
In addition, in practice, there is also a struggle for control of the company's license through the election of a custodian of the company's license by the shareholders' meeting[10].
3. Controversial issues in disputes involving resolutions over the struggle for control of the company.
1) Dispute over the time for the heir to exercise the relevant rights of the shareholders' meeting: whether the heir has the right to convene and preside over the shareholders' meeting, exercise voting rights or file a lawsuit for the validity of the resolutions of the shareholders' meeting since the beginning of the succession.
According to the provisions of the Company Law[11] and its judicial interpretations[12], shareholders of a company have the right to convene and preside over shareholders' meetings, exercise voting rights and file lawsuits for the validity of resolutions of shareholders' meetings. However, as mentioned above, in a dispute over the resolution of equity succession, other shareholders will often claim that the heirs have no right to exercise the relevant rights of the shareholders' meeting on the grounds that the heirs have not yet obtained the status of shareholders and the proportion of equity inherited by each heir has not yet been determined, which gives rise to a dispute over the time for the heirs to exercise the relevant rights of the shareholders' meeting, that is, whether the heirs who have not yet been recorded in the articles of association, the register of shareholders or registered as shareholders by industry and commerce have the right to exercise their shareholder rights. In this regard, there are two views in judicial practice: affirmative and negative.
Affirming the Theory[13], it is held that in the absence of special provisions in the articles of association of the company on equity succession, the heir has the right to inherit the shareholder qualifications, so it has the right to exercise the shareholder rights on behalf of the resolution of the shareholders' meeting that affects the rights of the decedent, and to file a lawsuit denying the validity of the resolution of the shareholders' meeting.
The negative argument [14] holds that although the heir can inherit and obtain shareholder qualifications in accordance with the provisions of the Company Law, he has not yet gone through the change registration and cannot be deemed to have the qualifications to file a lawsuit denying the validity of the resolution of the shareholders' meeting.
2) Whether the heirs or other shareholders can file a lawsuit to confirm the validity of the resolution of the shareholders' meeting.
The interpretation of the Company Law stipulates that the shareholders of a company may file a lawsuit denying the validity of the resolution. However, in the case of equity succession, if the heir or other shareholders have formed a resolution of the shareholders' meeting and the relevant interested parties have not filed a lawsuit to deny the validity of the resolution while raising the challenge, in this case, whether the former can first file a lawsuit to confirm the validity of the resolution of the shareholders' meeting in order to eliminate the doubt, there are also disputes in practice on this issue, and there is also a dispute between affirmative and negative arguments.
The negative argument [15] holds that the Company Law and its judicial interpretations do not provide that shareholders can file a lawsuit to confirm the validity of a resolution, and under normal circumstances, a corporate resolution is established and effective from the date of its issuance, and the shareholders' meeting falls within the scope of corporate autonomy, so judicial intervention should be prudent, so in principle, there is no need to confirm the validity of the resolution of the shareholders' meeting through a court judgment, and the successor or other shareholders do not have the benefit of litigation to file a lawsuit to confirm the validity of the resolution of the shareholders' meeting.
Affirmative[16] argues that although the Company Law and its judicial interpretations only provide for a lawsuit for the invalidity, revocation or invalidity of a company's resolution, the law does not exclude shareholders from having the right to file a lawsuit for the validity of the resolution, and in the event that there is a dispute between the relevant stakeholders over the validity of the resolution and the resolution is not actually performed, the shareholder has the benefit of filing a lawsuit for the validity of the resolution.
3) Disputes over the company's will representatives.
Disputes over the representation of the company's will in equity succession usually occur when the deceased shareholder acts as the legal representative. Although the company may form a resolution of the shareholders' meeting to elect a new legal representative, this resolution is often challenged by the relevant stakeholders. In the case of the death of the legal representative shareholder, such as the "new legal representative", directors, supervisors or other shareholders filing relevant lawsuits on behalf of the company, or facing disputes over whether they can represent the will of the company, take the following two cases as examples:
1.Case 1 [17]: Can the minority shareholder and supervisor represent the will of the company after the death of the company's major shareholder and legal representative?
In this case, Xu X 1 and Xu X 2 brothers jointly established a real estate development company, Xu X 1 held 98% of the shares and served as the legal representative, and his younger brother Xu X 2 held 2% of the shares and served as a supervisor. In July 2015, Xu Mou1 purchased a BMW car from Yang for 700,000 yuan and went through the transfer registration, but has not yet paid any money. In February 2016, Xu Mou1 passed away due to illness, and Xu Mou3 is the legitimate son of Xu Mou1 and the only first-order heir. In March 2016, after Yang's urging, Xu 2 transferred 700,000 yuan to Yang in the name of the company. Because the car was in the possession of Xu X 2, Xu X 3 filed a dispute against Xu X 2 in 2017 to return the original goods, and the trial court ruled in favor of Xu X 3's request and the vehicle was delivered to him. Thereafter, Xu Mou2, as a shareholder and supervisor of the company, filed a lawsuit for recovery against the successor Xu Mou3 on behalf of the company, demanding that he return the 700,000 yuan advanced car purchase price to the company.
After the trial, the court of first instance held that, according to the first paragraph of Article 50 of the Interpretation of the Civil Procedure Law, "the legal representative of a legal person shall be subject to the legal registration, unless otherwise provided by law." Where legal persons do not need to be registered in accordance with law, their principal responsible person is the legal representative; Where there is no principal responsible person, the deputy responsible person presiding over the work is the legally-designated representative. "In order to protect the interests of the company, Xu XX2, as the person in charge of the company, has the right to file a lawsuit on behalf of the company, so the judgment holds that Xu XX2 suing on behalf of the company meets the qualifications of the plaintiff, and judges that Xu XX3 should pay 700,000 yuan to the company for the purchase of the car.
The court of second instance held that the court of first instance erred in applying the law to find that Xu XX2 was the person in charge of the company by applying paragraph 1 of Article 50 of the Interpretation of the Civil Procedure Law, and that according to the provisions of Article 48, paragraph 2 of the Civil Procedure Law[18], the legal person was litigated by its legal representative, and in the case of the death of the company's original legal representative, Xu XX1, and the new legal representative had not yet been determined, Xu XX2's filing of a lawsuit in the name of the company could not represent the will of the company's legal person, so it ruled to revoke the first-instance judgment and dismiss the company's lawsuit.
2.Case 2 [19]: When the minority shareholder and legal representative of the company dies, can the majority shareholder or the "new legal representative" elected by the majority shareholder represent the will of the company?
In this case, the shareholders of a heavy duty truck company were Li (holding 20% of the shares) and a clean energy company (a Hong Kong company, holding 80% of the shares), and Li served as the legal representative of the company. After the death of Mr. Li, the company formed a shareholders' meeting and a resolution of the board of directors to elect Mr. Li1 as the new legal representative. Thereafter, on behalf of the company, Li X 1 filed a license return dispute against Li's spouse Hou, demanding the return of the company's license, seal and accounting accounts. Hou raised objections to the above-mentioned resolution to elect Li X 1 as the new legal representative.
After the trial, the court of first instance held that the shareholder and legal representative of Sinotruk Li had passed away, and his spouse had the conditions to inherit the qualification of a shareholder, and raised objections to the resolution of the shareholders' meeting and the board of directors to elect the new legal representative, so whether the company had formed a valid resolution to change the legal representative should be tried through a separate lawsuit, so the lawsuit was dismissed.
The court of second instance held that although the company's litigation representation usually belongs to the company's legal representative, the original legal representative Li has passed away, and the clean energy company, as the sole shareholder of the company, is the company's natural litigation representative and has the right to represent the company's will. (Note: The second-instance judgment of the case did not explain whether Li X 1 had the status of legal representative and whether he had the right to represent the company's will, but listed the clean energy company as the litigation representative of Sinotruk.) ）
4. Legal risks related to the shareholders' meeting in the process of equity succession.
As mentioned above, in equity succession, the heirs or other shareholders of the company may compete for control of the company through the shareholders' meeting, and after the shareholders' meeting forms a resolution, the relevant parties may file a lawsuit against the validity of the resolution or a dispute over the return of licenses. The types of resolutions of shareholders' meetings involving control struggles and the legal disputes involved in them have been elaborated above, and the following is intended to further analyze the relevant legal risks of shareholders' meetings involving control struggles
1) The validity of the resolution of the shareholders' meeting is defective.
As explained in the fourth article of the series on equity inheritance, although article 75 of the Company Law stipulates that, unless otherwise provided in the articles of association, heirs may inherit shareholder qualifications after the death of a natural person shareholder; Article 1121 of the Civil Code stipulates that inheritance begins at the time of the death of the decedent. However, whether the heir is qualified as a shareholder may also be affected by a number of factors such as the will, the willingness to inherit and the wishes of other shareholders of the company. Moreover, the inheritance of the company's equity is different from the inheritance of real estate and other property rights, and the equity inheritance needs to consider the interests of the heirs to inherit the estate, and also need to ensure the stability of the company's operation and management.
During the transition period between the commencement of the succession and the time before the heir is entered into the register of shareholders, if there is only one successor, there is no reason to restrict the heir from exercising his shareholder rights even though the heir is not recorded in the register of shareholders if there is no restriction on the succession of shares in the articles of association. However, if there are two or more heirs, and if there is a dispute between the heirs over the division of equity inheritance, i.e., whether to divide the shares at a discount or by proportion, even if the company and other shareholders agree to the relevant heirs to attend the shareholders' meeting and exercise their voting rights, if the relevant successors fail to reach an agreement on the resolutions of the shareholders' meeting, it is objectively not feasible to exercise voting rights[20]. Therefore, in practice, there is controversy over whether and how the heirs have the right to exercise their shareholder rights during the transition period.
Theoretically, on the issue of the co-heirs exercising shareholder rights during the aforesaid transition period, some scholars[21] argue that due to the particularity of equity inheritance, the exercise of equity by co-heirs does not need to change the record of the shareholder register in accordance with the formal requirements for obtaining shareholder qualifications through equity transfer; The estate administrator system can be used to regulate the exercise of equity by the co-heirs, that is, the estate administrator exercises shareholder rights on behalf of several heirs, but the election of the estate administrator requires the unanimous consent of the co-heirs; In addition, the administrator of the estate, as the appointee of the joint heirs, shall exercise the equity in accordance with the instructions of the heirs, and the execution of the instructions shall be subject to the unanimous decision of the heirs on matters related to the exercise of the equity, in other words, if the joint heirs cannot reach an agreement on the exercise of the equity, it shall be deemed to have waived.
For example, according to the provisions of the Civil Code[23], the estate administrator can be several, but this obviously cannot avoid the contradiction in the exercise of shareholder rights, so it should be limited to one person; In addition, the scholar emphasized the difference between the remedial rights of the shareholders of the company and the rights to operation and management and the right to income from assets, and advocated that in the case of several successors, one person should be selected to exercise the rights of shareholders, and if not selected, the company may refuse the successor to exercise the rights of shareholders, except for the exercise of remedial rights by the successors (such as filing a lawsuit denying the validity of the resolution of the shareholders' meeting or a lawsuit on behalf of the shareholders, etc.).
As mentioned above, there are controversies in judicial practice over whether and how the heirs, especially the co-heirs, have the right to exercise their shareholder rights during the transition period of equity succession. Since the Civil Code came into effect, some scholars have paid attention to this issue of the overlapping application of the Civil Law and the Company Law, and suggested that the Company Law should provide for the exercise of shareholder rights by the co-heirs in the equity inheritance in this round of amendments, but in this ** judicial revision draft, we have not seen the legislator respond to the issue of the exercise of equity by the co-heirs. Before the Company Law and judicial practice have explored effective rules for travel on the above-mentioned issues, the resolutions formed by the successors or other shareholders of the company during the transition period of equity succession may be defective due to the above-mentioned disputes.
2) Governance impasse under the dispute over the representation of the will of the company.
From the perspective of the expression of the will of the company, the organs of the company can be divided into the organs of the formation of the will and the organs of the expression of the will, usually the shareholders' meeting of the company or its authorized board of directors is the organ of the formation of the will of the company, and the legal representative is the expression of the will of the company [24].
In the event of the death of a shareholder who serves as the legal representative of the company, the organ for expressing the will of the company will inevitably be in a state of absence, and the organ for the formation of the will of the company may also be hampered based on the dispute over whether and how the heirs have the right to exercise the rights of the shareholders mentioned above, and then it will fall into a governance deadlock if it is unable to form a consistent expression of intent, i.e., a valid resolution of the shareholders' meeting.
3) The uncertainty of the exercise of the heir's shareholder rights in the context of defective capital contribution of the decedent.
Under the registered capital subscription system, there must be a situation where shareholders obtain shareholder qualifications before they have fully contributed capital, and the defects in the capital contribution of the shareholders of the company usually do not affect the exercise of their shareholder rights, but they need to bear the responsibility of making up the capital contribution[25].
In the case of equity succession, if the decedent makes a capital contribution in kind without appraisal or if the company and the decedent's affiliates have capital transactions after the decedent's capital contribution, there may be disputes between the heirs and other shareholders over the capital contribution[26]. If the judgment of the relevant capital contribution dispute determines that the decedent has failed to fulfill its capital contribution obligations or has withdrawn all of its capital contributions, the company may disqualify the decedent shareholder or the successor as a shareholder by resolution of the shareholders' meeting[27]. For example, in a case in which a shareholder sued the company for the validity of a resolution of the shareholders' meeting[28], the court found that the decedent had withdrawn all of the capital contributions after the trial court found that the decedent had withdrawn all the capital contributions. In addition, in practice, some companies have made a resolution to disqualify the heirs as shareholders when they send a letter to the heirs requesting them to fulfill their capital contribution obligations, but the heirs fail to make up the capital contributions[29].
V. Conclusion. On the one hand, the shareholders of the company realize the control of operation and management by exercising the voting rights of the shareholders' meeting - the shareholders' meeting is the power organ of the company, and the election and replacement of the company's directors and supervisors, the company's business policy and investment plan, the amendment of the articles of association, the increase or decrease of registered capital, the merger, division, dissolution and other major matters of the company have the right to decide, on the other hand, Since the control of the company is directly related to the interests of shareholders, the voting rights of shareholders are also a tool for different shareholders to compete for control of the company[30]. In equity succession, the company's shareholders' meeting also carries the struggle between the heirs or other shareholders for control over the identity of shareholders, company personnel and licenses.
There is uncertainty as to whether the heirs have the right to exercise their shareholder rights during the transition period after the death of the deceased shareholder and the commencement of the succession, and before the proportion of the inherited equity of each heir is determined or the heirs are recorded in the company's register of shareholders; If the heirs are allowed to exercise their shareholder rights, there is still a lack of normative guidance on how to exercise their shareholder rights, especially when multiple heirs are involved and there is a dispute between the heirs over the exercise of their rights, which involves the difficult balance of interests between the heirs' inheritance rights and the stability of the company's operation and management. In the dispute over the resolution of the shareholders' meeting involving the struggle for control of the company in the process of equity inheritance, whether the successor has the right to convene and preside over the shareholders' meeting, attend the meeting and exercise the right to vote during the transition period, or whether it has the right to file a lawsuit against the shareholders' meeting that believes that it infringes on the rights and interests of the company to deny the validity of the resolution is controversial and needs to be further explored in the theory and practice of company law.
In addition, based on the dispute over the exercise of the relevant rights of the shareholders' meeting by the successor during the transition period and the dispute over the validity of the resolution arising therefrom, it is also difficult to predict whether the company will be able to form an effective resolution related to equity succession, and whether it will be able to avoid the company's inability to form an effective expression of intent and fall into a governance deadlock while stabilizing the inheritance and normal operation.
As the Qing Dynasty poet Kong Shangren said in "Peach Blossom Fan", I saw him raise the Zhu Tower, saw him feast guests, and saw his building collapse. In order to avoid the sudden death of the actual controller and the tragedy of the family business falling into a group without a leader, as well as many disputes related to the struggle for corporate control during the transition period of equity succession and various uncertainties in the equity inheritance litigation, the actual controller should establish a sound corporate governance structure as soon as possible, settle the dispute from the source as soon as possible, and make a good equity inheritance plan in advance.
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