Effectiveness of Company Resolutions

The Provisions of the Supreme People’s Court on Several Issues Concerning the Application of the Company Law of the People’s Republic of China (IV) ( Judicial Interpretations (Ⅳ)) were published on August 25th, 2017 and entered into force on September 1st ,2017. These new Judicial Interpretations mainly focus on the protection to shareholders’ right, especially the minority shareholders’ right in 5 aspects, including the “Effectiveness of Resolutions”, “Shareholders’ right to know”, “Shareholders’ right to share profit”, “preemptive right”, “shareholders’ right to sue”. D’Andrea & Partners is delighted to introduce all of them in 4 articles. Today we’ll start with the Effectiveness of Resolutions.

1. Forms of Resolution’s effectiveness.

Besides Valid, Invalid and Revocable Board Resolution or Shareholders’ Resolution, a new form of resolution was recognized by the Judicial Interpretations (Ⅳ): Non-existent resolution. Thus there are four forms of effectiveness of a resolution instead of three.

VALID

INVALID

Both contents and procedure comply with the Laws and regulations and AoA.

Contents violate the Laws and regulations.

REVOCABLE

NON –EXISTENT (new form)

1. Calling Procedure and/or voting form violates laws, regulation and AoA.

2. Contents violate AoA.

1. Without meeting;
2. Without voting;
3. Number of attendees or voting right lower than Company Law or AoA;
4.Voting result doesn’t reach the proportion stipulated in Company law or AoA;

5. Others

2. Qualified Plaintiff and Defendant

Types of Effectiveness

Plaintiff

Defendant

Valid

Non-actionable

Non-actionable

Invalid

Shareholders,

Directors,

Supervisors, etc.

The Company

Revocable

Shareholders

The Company

Non-existent

Shareholders,

Directors,

Supervisors, etc.

The Company

3. Bona Fide Third Party

Bona Fide Third Party is a legal term which refers to the Party who makes a deal in good faith, without being aware of the actual status of the transaction item. In the principle of Laws, the rights and interests of Bona Fide Third Party shall be protected. Judicial Interpretations (Ⅳ) made it official to protect Bona Fide Third Party’s right concerning company’s resolutions.

To give a practical example, the shareholder of Company A would like to borrow money from Company B, and to do so he provided the guarantee letter approved by Company A’s Shareholders’ Resolution to Company B. But things change, the said Shareholders’ Resolution later got revoked by the court. Then is the Guarantee Letter valid? The answer is yes, Company B in this case is the Bona Fide Third Party, so Company A shall still take guarantee liabilities to this Loan.

In the next article, on coming Wednesday, we’ll talk about Shareholders’ right to know… #StayTuned !

For further information, please visit our website www.dandreapartners.com or contact us at: info@dandreapartners.com

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