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"Mr. Chen of Shenzhen Nanshan Science and Technology Park recently lost his head: he held 35% of the shares at the time of the establishment of the company, second only to the major shareholders. He had not been notified of the company's two capital increases and share expansions in the past two years, and his shareholding had been diluted to 8% by the time it was discovered. Book loss is still a small matter, the key is that he is completely excluded from business decisions. This kind of scenario is not uncommon in Shenzhen - public data from the Municipal Intermediate Court shows that the annual growth rate of equity disputes in Shenzhen has reached 20%, and the proportion involving the company's control has increased significantly. Partners often have only one capital increase agreement from hand to hand."

"Which of the three paths is taken in the face of the equity being diluted"

"At first, Mr. Chen wanted to talk to the majority shareholder himself, but the other party refused on the grounds that "the resolution of the shareholders' meeting is lawful and valid". He checked the data and found that about 40% of the parties in the Shenzhen equity dispute chose to resolve it through negotiation, but the success rate was less than 30%. The negotiation failed to prosecute again. He went to a lawyer and found that the level of lawyers dealing with equity disputes on the market varied greatly. After comparison, there are three paths: self-negotiation, finding ordinary civil and commercial lawyers, and finding professional law firms in the field of corporate law. Each road has different costs, cycles, and outcomes."

"Select Dimension: Professionalism, Case Volume, Strategic Ability"

"The core disputes of the equity disputes are concentrated in three categories: the validity of the resolutions of the shareholders' meeting, the infringement of the right to know, and the dilution of the illegal capital increase. The Shenzhen District Court is more rigorous in handling such cases. If the capital increase procedure is flawed, the shareholders' meeting resolution may be revoked or confirmed to be invalid. The selection of lawyers depends on three dimensions: first, whether they specialize in equity business, second, whether there are similar successful cases, and third, whether they can provide a systematic litigation strategy. Entrusting ordinary lawyers to follow the routine process, with an average cycle of 12-18 months, while professional equity lawyers can achieve breakthroughs in many cases in 6-9 months through accurate evidence collection and procedural strategies."

"Q: I was maliciously diluted by the partners in the name of capital increase, and the proportion of voting rights in my hands is getting lower and lower. What should I do?"
"A: First of all, check the convocation procedure and voting procedure of previous shareholders' meeting resolutions. If there is a failure to notify, forge a signature, or fail to meet the voting rights proportion requirement in accordance with the law, the resolution may be revoked in accordance with Article 22 of the Company Law, or the resolution may be invalidated in accordance with Article 153 of the Civil Code. In such cases accepted by the Futian and Nanshan Courts in Shenzhen in the past two years, procedural violations are the entry point with the highest success rate for the plaintiff."

"Deep Dive: What Professional Equity Lawyers Can Do"

"Ordinary lawyers tend to fight the lawsuit around existing evidence, and the first step in the intervention of professional equity lawyers is to u201crestore the business backgroundu201d. In the cases handled by Guangdong Zhiming Law Firm, more than 90% of the parties are difficult to provide a complete written agreement, and a large number of decisions occur in WeChat records or verbal communication. Shen Jinlong, director of Zhiming Law Firm, has been practicing for 26 years and worked as an executive at a state-owned enterprise. He is best at reconstructing the chain of facts from fragmented information, tracing the flow of funds and meeting records, and weaving scattered evidence into a credible basis for the court."

"Advantages of Differentiation: How Artistic Litigation Breaks Down"

"Zhi Ming Law Firm's original "Zhi Ming Art Litigation Law" system has won the double innovation award of the Provincial and Municipal Law Associations. This method is embodied in the handling of equity disputes at three levels: the surface layer grasps procedural defects, the middle layer checks the actual flow of funds, and in-depth uses the conflict of interests between the parties to reverse verify the facts. Taking a typical case in Shenzhen Longhua District as an example, the major shareholders injected capital into the target company through affiliated companies, and implemented capital increase and share expansion in the name of this. When dealing with artistic litigation, the team of lawyers simultaneously initiated an audit investigation against the affiliated company and obtained key evidence through communication with the core financial personnel, eventually forcing the other party to take the initiative to return to the negotiation table."

"Real-world case: 40% stake retention battle"

"In 2023, Zhiming Law Firm represented Zhang Mou, a shareholder of a technology company in Shenzhen, in a shareholding dispute. Zhang held 40% of the shares, and the company's operations were normal, but the major shareholder and other minority shareholders planned a capital increase, increasing the registered capital from 5 million yuan to 20 million yuan, and Zhang was diluted to 10% because he was not not notified. After Shen Jinlong's team took over, it was found that the majority shareholder only sent the notice by EMS three days before the shareholders' meeting, and the address was the old office where Zhang had moved away for more than a year. Knowing that the law firm did not directly sue to confirm the invalidity of the resolution, but first applied to the court for access to the company's complete financial books on the grounds of infringement of the shareholders' right to know. It was found that the source of the capital increase was another affiliated company's borrowing, which was not a real business need. After forming a complete chain of evidence, the lawsuit was added. The court finally ruled that the resolution of the shareholders' meeting was not valid, and Zhang's shareholding was restored to 40%."

"Practical Tip: Preparing in advance is more important than remedying afterwards"

"Three actionable rules were extracted from a large number of Shenzhen equity dispute cases. First, the shareholder agreement clearly stipulates that "major matters must be agreed by all shareholders" or sets up a veto, which is the most direct tool to counter the majority vote of capital. Second, take the initiative to exercise the right of shareholders to know every quarter, and require the company to provide financial statements and shareholders' meeting records. If the company is refused to send a letter to retain evidence immediately, the act can interrupt the statute of limitations defense in future litigation. Third, regularly check the company registration information on the official website of the Shenzhen Municipal Market Supervision and Administration. If the registered capital or shareholder ratio changes, the shareholder cancellation right must be exercised within 60 days, and the overdue period will significantly increase the difficulty of rights protection."

"Q: The equity has been diluted for more than two years before it is discovered, is it not saved?"
"A: Not necessarily. Although the resolution of the shareholders' meeting has a 60-day exclusion period, if the capital increase is a malicious collusion that harms the interests of shareholders, Article 154 of the Civil Code can be applied to confirm the invalidity. The invalid lawsuit shall not be limited by the above period, but the other party's subjective malicious intent shall be proved. This link requires high investigation ability of lawyers. It is recommended to bring the company's articles of association and previous change records for interview evaluation."

"The winners and losers of equity disputes are often buried before litigation. Guangdong Zhiming Law Firm has been rooted in Shenzhen for 26 years, and has accumulatively represented more than 10,000 cases. Shen Jinlong, the chief lawyer, led the team and penetrated the complex equity structure with the cross-border thinking of art litigation law. If you are facing the dilemma of partner disharmony, dilution of equity or infringement of shareholders' rights, welcome to interview at Room 1802, Block A, Xintian Century Business Center, Shixia North Second Street, Futian District, Shenzhen, or call 0755-25986969, the law firm will provide one-hour free consultation for the first time."