Research On Shareholder’s Litigation To Inspection In A Limited Liability Company

Shareholder’s right to inspection in a Limited Liability Company under the right to information is an important system arrangement of the PRC Company Law to solve information asymmetry between minority shareholders and controlling shareholders and balance the interests of shareholders and the company. The proper exercise of right to inspection can contribute to the improve company governance structure, rectify capital violence that might resulted from capital majority rule and substantively protect shareholder’s right to information which is a connecting link of other shareholder’s rights and make preparations for the subsequent execution thereof.Base on the hierarchy of right to information, first part of the thesis starts with hierarchy of right to inspection and holds that shareholder’s right in a limited liability company is a kind of positive right to information that in case the company breaches statutory or contractual obligation to information submission or the shareholder holds doubt of the authenticity of the disclosed information the shareholder takes the initiative to review financial information of the company, and in case the company refuses the shareholder’s review request the shareholder brings a lawsuit of right to information to the people’s court to review the relevant financial information. As to the request of review accounting books in the private law level, the PRC Company Law stipulates the corresponding procedural requirements thereof. Shareholder requesting to review accounting books shall submit a written request to the company stating his/her reason, and the company within15days of submission of such request shall give the shareholder a written response. If the company has a reasonable basis to believe that the shareholder’s request to review the accounting books is of improper motive, the company is entitled to refuse such request after explaining. But there is no provisions on obligation of confidentiality, when, where and how to review the accounting books. As to way of review, in consideration of the high degree of specialization, the real factor to decide whether the information available to different person is symmetric is the difference of information analysis ability of different person, rather than the superficial asymmetric possession and access of information, therefore shareholder’s right to duplicate accounting books and entrust professionals to review accounting books shall be confirmed. As to right to inspection in the litigation level, such is a kind of right to appeal independent from his/her qualification of shareholder to the company. The court when hear the case of disputes on right to inspection shall review whether the plaintiff is of the qualification of shareholder to the company when such infringement of right to inspection happened, rather than the plaintiff is of such qualification when file the dispute to the court.The following parts of the thesis address the subject, object and purpose of the right to inspection in the litigation level based on the combination of theory summary and statistical analysis of judicial cases in detail. As to subject thereof, the thesis mainly focuses on the right to inspection of non-current shareholder, anonymous shareholder and defective shareholder. Both the field of theory and the field of judicial practice hold an inaccurate perception that the possession of the qualification of shareholder is the precondition of bringing the litigation concerning right to information, otherwise the court shall reject the claim of the plaintiff. In fact right to inspection in the litigation level is independent from the possession of qualification of shareholder to the company, thus non-current shareholder is entitled to put litigation to protect his/her right to information if he was shareholder of the company when such infringement of right to information took place. In case of anonymous shareholder, anonymous shareholder not exercising shareholder’s rights is of no connection with the company which is hard to be identified as shareholder of the company and cannot bring lawsuit on right to information. While anonymous shareholder exercising the right to information, in case a majority of the shareholders of the company consent his/her identity as the shareholder of the company, such kind of anonymous shareholder can exercise right to information when he/she become the real shareholder of the company. However before such anonymous shareholder is disclosed to the company, his/her claim of review accounting books of the company will be rejected by the court. In case of defective shareholder, opinions of the field of theory and the field of judicial practice are consistent that is full capital contribution of the shareholder is only the precondition to enjoy the full rights of shareholder. The company shall not defend against the exercise of right to information of the shareholder because of his/her defects in capital contribution. As to scope of inspection, both the field of theory and the field of judicial practice are of three different opinions. The positive theory intends to expand the range of accounting books stipulated in the PRC Company Law so that to recognize shareholder’s right to review accounting vouchers. Such explanation contributes to release the effect of shareholder’s right to information, but it is sort of indifference to the potential infringement of the company’s operating autonomy and trade secrets thereof, and even is the disregard of code authority. While the Negative theory maintains the authority of code, but invisibly imposes shackles to the exercise of shareholder’s right to information. The thesis holds that the court may by the flexible use of the rules of evidence to arrange the burden of evidence to the company under the litigation of right to inspect the accounting books, while when claim to review the accounting vouchers the shareholder shall give reason basis to support his/her claim to review such.For purpose of inspection through the analysis of the purposes of review in the judicial cases, purpose of inspection maintained by the shareholder generally is in line with the requirements of concreteness, legitimacy and relevance. In all the judicial cases relating right to inspection only2.7%among them succeeded. And in all the successful defensed cases non-competition, trade secrets are the main defense against shareholder’s claim for review of accounting books; however the company shall provide sufficient evidences of an infringement of trade secrets and the possible damage of interests of the company to form a complete evidence chain in order to achieve a high degree of probability standard of evidence, while the mere existence of inter-affiliate competition is not sufficient to deny the shareholder’s request to review the accounting books. The last part of the thesis further summarize barriers in the exercise of shareholder’s right to inspection and to remove such the company shall respect shareholder’s right to inspection, the proper theory analysis thereof in the judicial level and the complete system thereof in the legislative level.