Taihe Research | Typical Case in the Corporate Governance Stage: Dispute over the Confirmation of the Invalidity of a Corporate Resolution
Release Date:
2026-09-23
Case Summary
Mr. Shi is a shareholder of a certain cultural development company in Shanghai (hereinafter referred to as “Shanghai Certain Cultural Company”), holding 50% of its equity and serving as its supervisor. Shanghai Certain Cultural Company was jointly established by Mr. Shi and Ms. Ma (who were formerly married) in May 2004, with a registered capital of RMB 500,000; each held a 50% stake. Ms. Ma served as the executive director and general manager, while Mr. Shi served as the supervisor. In April 2009, Shanghai Certain Cultural Company wholly established Yuyao Certain Technology‑Based Ecological Agriculture Co., Ltd. (hereinafter referred to as “Yuyao Certain Agricultural Company”), with a registered capital of RMB 51.88 million. Mr. Shi was originally the legal representative of Yuyao Certain Agricultural Company. The articles of association of Shanghai Certain Cultural Company provide that: if shareholders representing more than one‑tenth of the voting rights, the executive director, or the supervisor propose convening an extraordinary meeting, such a meeting shall be convened; the executive director shall call and preside over shareholders’ meetings; if the executive director is unable or unwilling to perform his duties, the supervisor shall call and preside; and if the supervisor fails to do so, any shareholder representing more than one‑tenth of the voting rights may independently call and preside. With respect to resolutions other than those concerning amendments to the articles of association or increases or decreases in registered capital—matters deemed special—approval requires the affirmative vote of shareholders representing more than one‑half of the total voting rights.
On March 30, 2021, a cultural company in Shanghai, without convening a shareholders’ meeting, changed the legal representative of a certain agricultural company in Yuyao from Mr. Shi to Mr. Lin and completed the corresponding industrial and commercial registration amendment (on March 17, 2022, the legal representative was further changed from Mr. Lin back to Mr. Gao). On October 14, 2021, Mr. Shi issued a “Notice of Convening an Extraordinary Shareholders’ Meeting,” proposing to hold such a meeting to deliberate on rescinding the aforementioned change of the legal representative of the Yuyao agricultural company and restoring the legal representative to Mr. Shi. The following day, he mailed this notice to Mr. Ma. Upon receipt, Mr. Ma replied, explicitly opposing the proposed change of the Yuyao agricultural company’s legal representative to Mr. Shi, and stated that, in November 2016, Mr. Shi had illegally affixed a forged official seal to unilaterally transfer the legal representation of the Yuyao agricultural company to himself, adding that the company reserved the right to pursue criminal liability against him. On November 5, 2021, Mr. Shi independently convened and presided over an extraordinary shareholders’ meeting of the Shanghai cultural company, adopting an “Extraordinary Shareholders’ Resolution” with the following contents: First, to approve the revocation of the Shanghai cultural company’s decision to change the legal representative of the Yuyao agricultural company; Second, to approve the restoration of the legal representative of the Yuyao agricultural company from Mr. Lin to Mr. Shi. The resolution was signed by Mr. Shi, who also retained photographic evidence of the meeting. The Shanghai cultural company contends that this resolution is invalid. Accordingly, Mr. Shi brought suit before the court, seeking a judgment confirming the validity of the “Extraordinary Shareholders’ Resolution” he convened and adopted on November 5, 2021. In response, the Shanghai cultural company argues that Mr. Shi lacks standing to seek confirmation of the resolution’s validity; that, as he is not an executive director, his direct convening and presiding over the extraordinary shareholders’ meeting contravenes Article 40 of the Company Law, rendering the resolution null and void; and that, pursuant to law, Mr. Ma, as an executive director, possesses the authority to effect the registration of the change of the Yuyao agricultural company’s legal representative, whereas Mr. Shi assumed the position of legal representative through the unauthorized use of a forged official seal.
Judgment Result
First-instance judgment: The court confirmed the validity of the “Resolution of the Temporary Shareholders’ Meeting” adopted by a certain cultural company in Shanghai on November 5, 2021. Following the judgment, the said cultural company in Shanghai, dissatisfied with the ruling, filed an appeal.
Second-instance judgment 1. Revoke the first-instance judgment; 2. Dismiss Mr. Shi’s claims.
Reasons for the Judgment
The court’s final judgment holds that the key issues in this case are: (1) whether Mr. Shi has standing to bring this action; (2) whether the procedural requirements for convening the shareholders’ meeting at issue render the resolution invalid; and (3) whether the voting threshold for the shareholders’ resolution in question complies with the provisions of the company’s articles of association.
With regard to standing, the law does not preclude a party from bringing, where the requisite conditions are met, a general declaratory action under civil procedure. It is impermissible to dismiss a claim seeking a declaration of the validity of a corporate resolution solely on the ground that the Company Law and the Supreme People’s Court’s Provisions on Several Issues Concerning the Application of the Company Law of the People’s Republic of China (IV) (Fa Shi [2020] No. 18), hereinafter referred to as “Interpretation IV of the Company Law,” provide only for actions seeking a declaration of the invalidity or non‑existence of a corporate resolution, or for actions seeking its annulment. In the present case, the shareholders of a certain cultural company in Shanghai dispute the validity of the shareholder resolution at issue, and the uncertainty surrounding that resolution has already impeded the company’s business decision‑making. Accordingly, Mr. Shi is entitled to bring an action seeking a declaration of the validity of the disputed shareholder resolution, and he thus possesses standing in this litigation.
Regarding the convening procedure: In accordance with Article 39 of the 2018 Company Law and the Articles of Association of a certain cultural company in Shanghai, if shareholders representing more than one-tenth of the voting rights or the supervisory board proposes the convening of an extraordinary meeting, such a meeting shall be convened. Accordingly, Mr. Shi, as a shareholder holding 50% of the shares and also serving as a supervisor, was entitled to propose the convening of the shareholders’ meeting at issue. Although the said shareholders’ meeting was directly convened and presided over by Mr. Shi, thereby lacking the prerequisite procedure requiring Executive Director Ma to convene and preside, considering the facts of this case, after receiving from Mr. Shi the “Notice of Convening an Extraordinary Shareholders’ Meeting,” Mr. Ma replied in writing, explicitly stating his disagreement with changing the legal representative of Yuyao Agricultural Company to Mr. Shi. On this basis, it can be determined that there was no possibility for Mr. Ma to convene and preside over the extraordinary shareholders’ meeting proposed by Mr. Shi, and moreover, this procedural defect did not have any substantial impact on the resolution. Therefore, the claim by the Shanghai cultural company that the resolution in question is invalid on the ground that the convening procedure lacked the requisite preliminary steps is not upheld.
Regarding the voting threshold: Article 11 of the articles of association of a certain cultural company in Shanghai provides that shareholders shall exercise their voting rights at shareholders’ meetings in proportion to their respective capital contributions. The shareholders’ resolution at issue was required to be approved by shareholders representing more than one-half of the total voting rights of all shareholders; this “more than one-half” should be construed as excluding the threshold itself, meaning that a majority—i.e., more than 50%—is necessary for the resolution to be valid. The reasons are as follows: First, a shareholders’ resolution adopted by shareholders representing a majority of the voting rights is consistent with the principle of capital‑majority voting enshrined in the Company Law. Second, the two shareholders of the said cultural company each hold 50% of the equity. If the phrase “more than one-half” in the articles of association were interpreted as including the threshold, then, in the event of a conflict between the two shareholders, either shareholder could convene a shareholders’ meeting and adopt resolutions that are mutually opposed, thereby leaving corporate governance perpetually in an uncertain state. From a rational standpoint, the term “more than one-half” in the articles of association should not be construed as inclusive of the threshold. Accordingly, the shareholders’ resolution in question was, in fact, approved by shareholders representing only one-half of the total voting rights, falling short of the approval threshold stipulated in the articles of association. On this basis, the cultural company’s claim that the resolution is invalid is upheld.
Legal advice
1. This case has established the interpretive rule regarding whether the term “above” in the articles of association’s voting‑threshold provision includes the specified number itself. For a limited liability company with only two shareholders, each holding 50% of the shares, the articles of association stipulate that resolutions of the shareholders’ meeting must be approved by shareholders representing more than half of the total voting rights. The term “more than” in this provision should be construed as exceeding a simple majority, without including the threshold itself. Accordingly, a resolution unilaterally adopted by a shareholder holding 50% of the shares would not meet the required approval threshold because the voting rights represented by that shareholder are exactly equal to the threshold, and thus such a resolution is invalid under the law. This rule is consistent with the principle of majority rule based on capital and prevents situations in which evenly‑split companies, when their shareholders are deadlocked, adopt mutually contradictory resolutions, thereby plunging corporate governance into uncertainty. Article 66 of the Company Law, as amended in 2023, explicitly provides that “resolutions of the shareholders’ meeting shall be adopted by shareholders representing more than half of the total voting rights,” which aligns with the spirit of the judgment in this case.
2. For shareholders, particularly those in a 50/50 co‑ownership structure, the following aspects should be given close attention:
(1) Acknowledge the inherent risk of deadlock in a 50:50 equity structure. When each party holds a 50% stake, neither side can independently pass valid resolutions at the shareholders’ meeting. When structuring equity, avoid simple equal splits; if an equal split is unavoidable, the company’s articles of association should pre‑emptively establish mechanisms to resolve deadlocks, such as stipulating proxy voting rights, bringing in a third‑party shareholder or independent directors, or clearly defining provisions for share repurchase or exit.
(2) Organize the presentation of evidence concerning the statutory grounds for a resolution’s invalidity. According to Article 5 of the Fourth Interpretation of the Company Law, circumstances such as the company failing to convene a meeting, the meeting failing to vote on the matters at issue, the number of attendees or the voting rights held by shareholders not complying with the provisions of the Company Law or the company’s articles of association, or the voting results failing to meet the approval thresholds prescribed by the Company Law or the articles of association, all constitute grounds for a resolution’s invalidity. A party asserting that a resolution is invalid shall focus on presenting evidence regarding the tally of voting rights, the agreed‑upon approval thresholds in the articles of association, and the procedures for convening the meeting and conducting the vote.
(3) Making effective use of actions to confirm the validity of corporate resolutions. The law does not prohibit shareholders from bringing such actions when the validity of a corporate resolution is in dispute and its outcome affects the company’s business decisions. In this case, the court recognized the standing to bring such affirmative actions for confirming the validity of resolutions, thereby providing shareholders with a judicial remedy to secure the legal effect of resolutions and mitigate operational uncertainty.
3. For the company, to mitigate the risk of a resolution being deemed invalid, efforts should be made on two fronts: drafting the articles of association and establishing procedural safeguards.
(1) The provisions governing the voting on the articles of association must be clear and unambiguous. With respect to the threshold for adopting resolutions, the articles of association should explicitly specify whether terms such as “above,” “more than half,” or “exceeding” include the specified number itself, thereby preventing disputes over the validity of resolutions arising from differing interpretations. Where special arrangements are made for corporate governance, such provisions may be set forth in the articles of association, with due attention paid to obtaining the unanimous consent of all shareholders.
(2) Standardize the prerequisite procedures for convening the shareholders’ meeting. In a limited liability company without a board of directors, the shareholders’ meeting shall be convened and presided over by the executive director; if the executive director is unable or unwilling to perform his or her duties, the meeting shall be convened and presided over by the supervisor; if the supervisor likewise fails to convene and preside, shareholders representing at least one-tenth of the voting rights may convene and preside over the meeting themselves. Prior to convening the meeting on their own, shareholders should retain evidence demonstrating that they have duly requested the executive director and the supervisor to do so, in order to avoid disputes arising from procedural defects.
(3) Material matters shall be subject to the prescribed resolution procedures. Changes to the legal representative of a subsidiary, disposal of significant assets, and adjustments to external investments, among other such matters, must comply with applicable laws and the company’s articles of association and undergo the corresponding resolution processes. This is to prevent shareholders from challenging the validity of such actions on the grounds of procedural violations or invalid resolutions, and to avoid disputes over corporate control arising from unauthorized changes.
4. The legal consequences arising from the confirmation that a resolution is invalid should be given due consideration. Pursuant to Article 28 of the Company Law of the People’s Republic of China (as amended in 2023), if a resolution of the shareholders’ meeting or the board of directors is declared invalid, revoked, or confirmed as non‑existent by a people’s court, the company shall apply to the company registration authority for the cancellation of any registration that has been effected on the basis of such resolution. At the same time, in line with the spirit of Article 6 of the Interpretation IV of the Company Law, civil legal relationships established by the company with bona fide third parties on the strength of a defective resolution shall, in principle, remain unaffected. Accordingly, the company should ensure that its resolution‑making procedures are complete and that the required voting thresholds are met, so as to avoid legal risks such as the revocation of registrations or uncertainty regarding the validity of external transactions arising from the invalidity of a resolution.
Article link
The Company Law of the People’s Republic of China (as amended in 2018; the version applicable to this case is the 2018 amendment)
Article 39 The shareholders’ meeting shall be convened as either a regular meeting or an extraordinary meeting. Regular meetings shall be held on schedule in accordance with the provisions of the company’s articles of association. An extraordinary meeting shall be convened upon the proposal of shareholders representing more than one-tenth of the voting rights, more than one-third of the directors, the board of supervisors, or, in companies without a board of supervisors, the supervisor.
Article 40 Where a limited liability company establishes a board of directors, the shareholders’ meeting shall be convened by the board of directors and chaired by the chairman; if the chairman is unable or unwilling to perform his duties, the vice-chairman shall preside; if the vice-chairman is unable or unwilling to perform his duties, a director shall be jointly nominated by more than half of the directors to preside. Where a limited liability company does not establish a board of directors, the shareholders’ meeting shall be convened and presided over by the executive director. If the board of directors or the executive director is unable or unwilling to fulfill its duty to convene the shareholders’ meeting, the supervisory board, or, in the absence of a supervisory board, the supervisor, shall convene and preside; if the supervisory board or the supervisor fails to convene and preside, any shareholder holding more than one-tenth of the voting rights may convene and preside on his or her own.
Article 43. Except as otherwise provided in this Law, the procedures for conducting meetings and the voting methods of the shareholders’ meeting shall be prescribed in the company’s articles of association. Resolutions to amend the articles of association, increase or reduce the registered capital, or approve a merger, division, dissolution, or change in the company’s legal form must be adopted by shareholders representing not less than two-thirds of the total voting rights.
Company Law of the People’s Republic of China (Revised in 2023)
Article 27: Resolutions of the shareholders’ meeting or the board of directors shall be invalid if any of the following circumstances exists: (1) No shareholders’ meeting or board of directors meeting was convened to adopt the resolution; (2) No vote was taken on the matter at issue; (3) The number of attendees or the number of voting rights held does not meet the quorum required by this Law or by the company’s articles of association; (4) The number of votes in favor or the number of voting rights held does not meet the quorum required by this Law or by the company’s articles of association.
Article 28: If a resolution of the shareholders’ meeting or the board of directors of the company is declared invalid, revoked, or confirmed as non‑existent by the people’s court, the company shall apply to the company registration authority for the cancellation of any registration that has been effected pursuant to such resolution.
Article 66. Except as otherwise provided in this Law, the procedures for conducting meetings and the voting methods of the shareholders’ meeting shall be prescribed in the company’s articles of association. Resolutions of the shareholders’ meeting shall be adopted by a majority of the voting rights represented. Resolutions to amend the company’s articles of association, to increase or reduce the registered capital, or to merge, split, dissolve, or change the form of the company shall be adopted by shareholders representing not less than two-thirds of the voting rights.
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) (Fa Shi [2020] No. 18)
Article 1: Where shareholders, directors, supervisors, or other interested parties of a company seek to have a resolution of the shareholders’ meeting or general meeting of shareholders, or of the board of directors, declared invalid or non-existent, the people’s court shall accept the case in accordance with the law.
Article 5 Where a resolution of the shareholders’ meeting or general meeting of shareholders, or of the board of directors, falls under any of the following circumstances, and a party contends that the resolution is invalid, the people’s court shall uphold such claim: (1) The company has not convened a meeting, except where, pursuant to Article 37, paragraph 2 of the Company Law or the articles of association, a decision may be made directly without convening a shareholders’ meeting or general meeting of shareholders, provided that all shareholders have signed and sealed the relevant decision document; (2) The meeting did not conduct a vote on the matters subject to resolution; (3) The number of attendees or the voting rights held by shareholders does not comply with the provisions of the Company Law or the articles of association; (4) The voting results of the meeting fail to reach the approval threshold prescribed by the Company Law or the articles of association; (5) Other circumstances that render the resolution invalid.
Article 6: Where a resolution of the shareholders’ meeting or general meeting of shareholders, or of the board of directors, is declared invalid or revoked by a people’s court, any civil legal relationships established by the company with bona fide third parties on the basis of such resolution shall remain unaffected.
Attorney Zhao Liwei
Taihe (Suzhou) Law Firm
Attorney Zhao Liwei graduated from the Wang Jian School of Law at Soochow University and is a member of the Communist Party of China. With 16 years of legal practice, he currently serves as… Deputy Director of the M&A and Restructuring Committee of Taihe Law Firm, Secretary of the Taihe (Suzhou) Party Branch, examiner for the internship assessment of the Suzhou Lawyers Association, Deputy Director of the Rule of Law Construction Committee of the Suzhou Industrial Park Free Trade Zone, member of the Social Governance Committee, and supervisor as well as Deputy Director of the Legal Affairs Committee of the Suzhou–Wuxi Chamber of Commerce. Previously served as a delegate to the CPC Congress of Gusu District and was recognized as an Outstanding Communist Party Member by Gusu District, Xiangcheng District, and the Suzhou Industrial Park. Holds certifications in securities practice, tax planning, and psychological counseling.
Practice Areas: Equity‑based investment and financing, and criminal–civil cross‑border matters (specifically including equity structure design and optimization, resolution of equity disputes, equity‑related investment and financing, mergers and acquisitions and corporate restructuring, criminal risk prevention and legal analysis for directors, supervisors, and senior management, as well as resolution of criminal–civil cross‑border disputes).
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