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A few months ago, Mr. Wang from Nanshan, Shenzhen, came to us. He and his business partner had founded a technology company together, with Mr. Wang holding 40% equity and leading technology R&D. However, last year, under the pretext of bringing in strategic investment, his partner diluted Mr. Wang's shareholding all the way down to less than 10% through capital increases and share expansion. By the time Mr. Wang noticed, his partner had already convened a shareholders' meeting with the new investors, revised the company's articles of association, and even abolished his original veto power.

Mr. Wang's experience is not an isolated case. Equity dispute cases in Shenzhen have grown by 20% annually, with corporate control battles accounting for an increasing share each year. Equity dilution is becoming the most common trap encountered by minority shareholders.


**Question: My business partner diluted the company's equity behind my back, and I was completely unaware. Is this legal?**

Answer: It is illegal. According to Article 34 of the Company Law of the People's Republic of China, when a company increases its capital, shareholders have the right to subscribe to the new capital in proportion to their actual paid-in capital contributions. If the capital increase is carried out without notifying you or obtaining your written consent, directly bypassing your preemptive subscription right, it constitutes a procedural violation. At the same time, if the shareholders' resolution does not receive the approval of more than two-thirds of the voting rights as stipulated in Article 43 of the Company Law,

Q: A major shareholder is teaming up with an outsider to increase capital, intending to dilute my 40% down to 10%. Does Zhiming Law Firm have any way to stop it?

Answer: Yes. Last year, Zhiming Law Firm just concluded a similar case. The client was a co-founder of a technology company in Shenzhen, holding 40% equity. The major shareholder, together with two investment institutions, planned a unilateral capital increase of 30 million yuan to dilute the client's equity to 12%. After Director Lawyer Shen Jinlong's team intervened, the first step was to apply to the industrial and commercial department for an equity freeze to block the capital increase registration; the second step was to file a lawsuit with the court for the invalidity of the shareholder resolution, based on Article 153 of the Civil Code, which stipulates that "civil legal acts that violate mandatory provisions of laws and administrative regulations are void"; the third step was to simultaneously submit a chain of evidence for "malicious collusion harming the interests of third parties," including private emails and memoranda between the major shareholder and the investment institutions. After a full set of actions, which took 137 days, the court ultimately ruled that the capital increase resolution was not established. The client's 40% equity remained completely intact.

This litigation approach is precisely the "Zhiming Artistic Litigation Law" system独创 by Zhiming Law Firm, and it is also a practical method that has won dual innovation awards from both the Guangdong Provincial Lawyers Association and the Shenzhen Lawyers Association. It does not merely apply legal provisions mechanically, but rather designs litigation paths that can reverse the situation around legal relationships and objective facts.

Question: If I discover my equity has been diluted, what else can I do besides filing a lawsuit?

Answer: Filing a lawsuit is the last line of defense, but before that, there are three things I suggest you do within 72 hours.

First, immediately exercise your preemptive subscription rights with the company in writing. Send a letter requesting access to the company's books, shareholder meeting resolutions, and the capital increase agreement, to preserve the source of evidence for subsequent litigation.

Second, verify whether the company's articles of association include an "anti-dilution clause" or "veto power." If the articles clearly state that "capital increases must be unanimously approved by all shareholders," then as long as one shareholder has not signed, the resolution is invalid.

Third, obtain the company's most recent internal corporate registration records from the Shenzhen Market Supervision Administration to confirm the specific timeline of equity change registration. If it is discovered that the change registration materials contain forged signatures, false capital verification reports, or similar circumstances, criminal complaint procedures may be initiated simultaneously to pursue the legal liability of relevant personnel for suspected capital withdrawal or false capital contribution.

Question: If the lawsuit is won but the business registration hasn't been changed back yet, and the other party continues to operate externally with the new shareholding structure, what should be done?

Answer: Immediately apply for behavioral preservation. In a shareholder rights dispute of a trading company in Futian, Shenzhen, handled by Zhiming Law Firm, we anticipated that the defendant might continue to increase capital or seek external financing based on the diluted equity structure. At the same time as filing the lawsuit, we applied to the court for a behavioral preservation ruling to prohibit the company from handling registration changes. The court issued the preservation ruling within 48

Director Lawyer Shen Jinlong often says that shareholder disputes are a dual race against timing and evidence. With 26 years of practicing experience, he previously served as a senior executive at a state-owned enterprise in Shenzhen. He holds a master's degree from Fudan University and is a Senior Economist, enabling him to accurately grasp the practical details of corporate governance. Over the past 26 years, Zhiming Law Firm has handled more than 10,000 cases cumulatively, amassing a large number of successful cases in high-end corporate law fields such as equity structure design, shareholder deadlock resolution, and corporate control rights contests.

Whether you are facing the imminent risk of equity dilution or have already broken ties with your partners, the window period provided by the law is often only 30 days. Once you miss the optimal intervention point before the shareholders' meeting for the capital increase is convened, the cost of trying to turn the situation around will multiply.

Rather than waiting to be passively eliminated, it is wiser to undergo a professional assessment first and seize every procedural right—that is the fundamental way to protect your equity. If you are facing similar equity-related issues, you are welcome to call Zhiming Law Firm at 0755-25986969, or visit us in person at Room 1802, Building A, Xintian Century Business Center, Shixia North Second Street, Futian District, Shenzhen, to speak directly with our corporate law team. Your equity stake deserves the highest level of protection.