CHINA Law and Practice Contributed by: Chen Ma, Michelle Gon, Xinjie Li and John Fitzpatrick, Han Kun Law Offices
high-level appointments. While they do not engage in the day-to-day administrative or operational activities – which are delegated to the board of directors and senior management – they hold the ultimate authority over fundamental corporate changes. This includes approving mergers, acquisitions, and amendments to the company’s constitutional documents. Under Chinese law, shareholders are generally not permitted to directly interfere with the board’s spe - cific management decisions or bypass the formal corporate structure to issue orders to staff. However, because shareholders appoint and can remove direc - tors, they exert significant indirect influence. In many Chinese private enterprises, the controlling sharehold - er may also hold a concurrent position as the chair - person or legal representative, effectively bridging the gap between ownership and active management. 4.3 Shareholder Meetings Shareholder meetings are a mandatory requirement for both LLCs and joint stock companies. These meet - ings are classified as either annual general meetings, which must be held once every year, or extraordinary meetings, which are convened as needed to address urgent matters. The law requires a formal notice period – typically 20 days for annual meetings of joint stock companies – to ensure all shareholders have sufficient time to review the agenda and prepare for voting. The conduct of these meetings is strictly regulated to protect shareholder participation. Resolutions are passed based on voting thresholds: ordinary reso - lutions usually require a simple majority of the vot - ing rights present, while “special resolutions” (such as capital increases or mergers) require a two-thirds majority. Modern regulations also allow the use of electronic voting and online participation, especially for listed companies, to facilitate engagement from minority shareholders who cannot attend in person. 4.4 Shareholder Claims Shareholders have several legal avenues to seek redress against the company or its directors for mis - conduct or negligence. A shareholder may file a direct lawsuit against the company if a director or senior officer violates laws or the articles of association, causing direct harm to the shareholder’s personal
rights and interests as an investor (such as the right to vote or receive dividends). Furthermore, if a resolution passed by the board or a shareholder meeting violates the law or the company’s articles, shareholders can petition the court to have that resolution revoked or declared null and void. Shareholders may also initiate derivative lawsuits in cases where the company suffers losses due to a director’s breach of fiduciary duty but the company itself refuses to take action. Under this mechanism, eligible shareholders sue the wrongdoers in their own name on behalf of the company, and any damages recovered are paid to the company. These claims serve as a critical check on management power and help ensure that directors remain accountable to the corporation as a whole. 4.5 Shareholders in Publicly Traded Companies Shareholders in publicly traded companies are subject to rigorous disclosure obligations to ensure market transparency and prevent insider trading. Any share - holder whose holdings reach 5% of the company’s total issued shares must notify the securities regula - tory authorities and the stock exchange, and make a public announcement within a specified timeframe. Subsequent changes in ownership that hit certain thresholds trigger additional reporting requirements (typically every 1% or 5% change in ownership). There is also a strong emphasis on disclosing the “ulti - mate beneficial owner” (UBO) of publicly traded com - panies. Chinese regulations require listed companies to look through layers of corporate vehicles to identify the natural persons who actually control or benefit from the shareholding. This transparency is intended to expose potential “shadow” controlling sharehold - ers and manage risks related to related-party transac - tions and market manipulation. Compliance with these rules is mandatory, and failure to disclose can result in administrative fines or the suspension of voting rights.
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