Whether the Dormant Shareholders Could Review the Company’s Accounting Books?

Mr. Wang is the dormant shareholder of a Jiangsu company. He has made the capital contribution to the company, and received dividends for several times. Because he had doubts on the calculation of the company’s profit, he filed an application in written to the company on reviewing the accounting books. However, the company refused his request. Then Mr. Wang filed a lawsuit against the company on the violation of shareholder’s right to know. Finally, Mr. Wang won the lawsuit.

The dormant shareholder of a Beijing company, Mr. Zhang has faced the same situation, and filed the same lawsuit, but he was rejected by the court. He was informed that he had to bring a lawsuit on the dispute over the recognition of shareholder standing prior to the lawsuit on the dispute over the shareholder’s right to know.

The above 2 cases reflect a normal problem, whether a lawsuit on the dispute over the recognition of shareholder standing shall be heard prior to the lawsuit on the dispute over the shareholder’s right to know.

Article 33 of ‘Company Law’ has stipulated that a shareholder may request to examine the account books of the company. …… If the company refuses to provide the account books for examination, the shareholder may petition to the people’s court to demand that the company provide such documents for review. Literally, ‘Company Law’ has not explained whether the dormant shareholder could review the account books of the company.
In the judicial practice, ‘Provisions of the Supreme People’s Court on Several Issues concerning the Application of the Company Law (III)’ has prescribed that the court should support the dormant shareholder’s claim over the recognition of shareholder standing, unless otherwise as stipulated in Article 52 of ‘Contract Law’. However, it fails to clarify whether the dormant shareholder shall bring a lawsuit on the dispute over the recognition of shareholder standing prior to the lawsuit on the dispute over the shareholder’s right to know.

Due to the above legislation reason, different courts may make different judgments in practice. For example, ‘Opinions of Shanghai High People’s Court on the Several Issues related to the Trial of the Company Litigation’ (2003), Article 1 has prescribed that the actual investor ( the dormant shareholder) shall bring the lawsuit on the dispute over the recognition of shareholder standing prior to the lawsuit on the dispute over the shareholder’s right to know. The Beijing High People’s Court holds the same opinion. But for Jiangsu High People’s Court, the principle is that the 2 lawsuits could be combined, but whether the judgement shall be divided, it depends on the claim of the plaintiff. (Quoted from, ‘The Summary of the Jiangsu Courts Symposium on the Difficult Cases related to the Company law’). The case in the opening, we can see that the 2 lawsuits were combined.

To sum up, in practice, we suggest the dormant shareholder shall pay attention to the following 2 aspects:

Firstly, it would be better for the dormant shareholder to require the company to issue the relevant documents to prove its identity, and keep such documents well. Those documents shall include but not limited to the anonymous investment agreement, the investment certificate, the meeting minutes of the board of shareholders, the documents related to dividends and etc..

Secondly, it would be better for the dormant shareholder to investigate the local judicial rules on the requirements and procedure on claiming for the shareholder’s right to know.