CHINA Law and Practice Contributed by: Kevin Wang, Global Law Office
articles of association or the resolution of the shareholders’ meeting, and its execution causes serious losses to the company, the directors par - ticipating in the resolution shall be liable for loss compensation to the company. However, if it is proved, as normally recorded in the board meeting minutes, that a director has expressed their objection at the time of voting, that director may be exempted from liability. 4.8 Consequences and Enforcement of Breach of Directors’ Duties If directors or officers breach their duties, they may face the following consequences: • internal disciplinary action; • shareholder lawsuit; • administrative punishment; and • civil liability and criminal punishment. Shareholder Derivative Lawsuits Against Directors or Officers If directors or officers breach their duties and thereby cause losses to the company or its wholly-owned subsidiaries, the shareholder(s) of the limited liability company, or shareholders individually or collectively holding 1% or more of the total shares of a joint stock company for 180 consecutive days or more, may request the board of directors or board of supervisors in writing to file a lawsuit against the responsible directors or officers. If the board of supervisors or board of direc - tors does not file a lawsuit or in an emergency, shareholders satisfying the aforesaid conditions have the right to file a lawsuit in their own name representatively, in the interests of the company. If a shareholder brings a lawsuit against a direc - tor, an officer or other persons in accordance
with the above procedures, the company shall be listed as a third party to participate in the lawsuit. Circumstances of Director or Officer Breaching Fiduciary Duty There are legal bases for shareholder derivative lawsuits against directors or officers for breach - ing corporate governance requirements: • directors or officers shall be liable for com - pensation if they injure the interests of the company by taking advantage of their con - nection relationship; • responsible directors and officers shall be liable for compensation if they fail to promptly perform the obligation of checking and super - vising the shareholders’ fulfilment of capital contribution obligation; • responsible directors and officers shall be jointly and severally liable for compensation with the shareholder if the shareholder with- draws their capital contribution and causes losses to the company; • responsible directors and officers shall be liable for compensation for losses caused to the company if the company distributes prof - its to shareholders in violation of the law; • responsible directors and officers shall be liable for compensation if the company pro - vides financial assistance for another person to illegally acquire shares of the company or its parent company and causes losses to the company; • responsible directors and officers shall be liable for compensation for losses caused to the company if registered capital is reduced in violation of the law; and • the director with obligations of liquidation of the company shall be liable for compensa - tion if they fail to perform their liquidation
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