Case Study Shareholders’ Right Valen Nov.2012

Case for Discussion William is a minority shareholder and director of Company A (Limited Liability Company). He only owns 10% of the shares of the company and occupies 1 seat in the board of directors which is made up by 5 people. Thus, his suggestions are often vetoed by the shareholders’ meeting or the meeting of the board of directors.

Case for Discussion So William turns to a lawyer for advice. Under which circumstances can he, as a shareholder, file a lawsuit against Company A?

Case for Discussion 1. The shareholders’ meeting decides that in order to protect the managerial secrets, the shareholders will not enjoy the right to consult the financial reports of the company.

Article 34 The shareholder may request to consult the accounting books of the company. Where a shareholder requests to consult the accounting books of the company, it shall submit to the company a written request which shall state its motives. If the company, pursuant to any justifiable reason, considers that the shareholder's request to consult the accounting books for any improper purpose may damage the legitimate interests of the company, it may reject the request of the shareholder, and shall, within in 15 days after the shareholder submits a written request, give it a written reply which shall include an explanation. If the company rejects the request of any shareholder to consult the accounting books, the shareholder may plead the people's court to demand the company to approve consultation.

Case for Discussion 2. The term of office of the board of directors expires. However, in order to maintain his control over the company, the chairman of the board of directors refuse to convene the shareholders’ meeting to re-elect directors.

Article 41, Section 3 If the board of directors or the acting director is unable or does not perform the duties of convening the shareholders' meeting, the board of supervisors or the supervisor of the company with no board of supervisors may convene and preside over such meetings. If the board of supervisors or supervisor does not convene or preside over such meetings, the shareholder representing 1 / 10 or more of the voting rights may convene and preside over such meetings on his/its own initiative.

Case for Discussion 3. Despite William’s opposition, the board of directors works out the plan on a merger with another company.

Article 47 The board of directors shall be responsible for the shareholders' meeting and exercise the following authorities: … (7) working out the company's plans on merger, split-up, change of the company form, dissolution, and etc.; …

Article 49, Section 3 In the voting on a resolution of the board of directors, one person shall have one vote.

Case for Discussion 4. The shareholders’ meeting decides that if the supervisors fail to prove any illegitimacy in terms of company management, all the investigation expenses shall be covered by themselves.

Article 57 The expenses necessary for the board of supervisors or the supervisor of a company with no board of supervisors to perform its (his) duties shall be borne by the company.

Thank You!