When a Partner Turns Hostile and a Capital Increase Dilutes Equity from 40% Down to 8%, Can You Fight for Your Rights? A Shenzhen Lawyer Explains Shareholder Rights Protection in 4 Questions and 4 Answers

Zhang (pseudonym), who runs a SaaS company in Nanshan, Shenzhen, has been suffering from severe insomnia lately. When he started the business, he contributed the technology and built the team, holding 40% equity. Last year, his partner said they wanted to bring in a new investor, and Zhang signed off on it. A year later, when he reviewed the business registration records, he discovered his equity had been diluted to just 8% — the new investor took 50%, and the partner even gave themselves an extra 10%. He came to us in Futian and asked outright: "I have no objection to a capital increase and share expansion, but if they play it this way, can I still get my equity back?"
It is unlawful. A company's capital increase and share expansion must be voted on by the shareholders' meeting; it cannot take effect merely because the founder signs privately. Article 34 of the Company Law clearly provides: when a company increases its registered capital, shareholders have the right to subscribe for the newly increased capital on a priority basis in proportion to their paid-in capital contributions. In practice, many investors do not directly increase capital, but instead use three methods to set up schemes: establishing a limited partnership shareholding platform, increasing capital at a low price, and inflating the valuation of intangible assets. Equity dispute cases in Shenzhen have grown by an average of 20% per year, with claims of infringement of shareholders' rights on the grounds of "dilution through capital increase" accounting for nearly one-third of them. However, the prerequisite is that you must act within the statutory period—according to Article 22 of the Company Law, if the content of a shareholders' resolution violates laws or the articles of association, a shareholder may request the people's court to revoke it within 60 days from the date the resolution is made. After 60 days, you lose this right.
Yes, but it depends on the evidence. Last year, Zhiming Law Firm handled a similar case in Futian, Shenzhen: a tech company had three shareholders, and the majority shareholder wanted to squeeze out the two founders. He engineered a "targeted capital increase," issuing new shares at a company valuation of 1 yuan per share to a shareholding platform he controlled, directly diluting the other two shareholders from 40% and 30% down to 10% and 8%. After taking the case, we did not directly file a "revocation lawsuit" but instead pursued two tracks: on one side, we applied for retrieval of business registration archives and inspection of shareholders' meeting minutes to solidify evidence of procedural violations; on the other side, we filed a lawsuit with the court to confirm that the capital increase resolution was invalid. In the end, the court adopted our argument on "malicious collusion harming the lawful rights and interests of others" and ruled that the capital increase resolution was invalid, restoring the two shareholders' equity ratios to their original state. When Director Lawyer Shen Jinlong led the team in handling this case, he used precisely the "Zhiming Artistic Litigation Methodology" system—rather than fixating on a single basis for claims, the team combined three pathways under company law—resolution validity, shareholders' right to information, and tort liability—advancing them jointly, ultimately helping the clients preserve a combined 40% equity stake. The case took nine months from start to finish, went through three levels of proceedings, and was highly difficult, but as long as the direction is right, the case can be turned around.
This is another form of infringement independent of equity dilution. The shareholder's right to information is a fundamental right, and the law has your back. Article 33 of the Company Law stipulates that shareholders have the right to inspect and copy the company's articles of association, minutes of shareholders' meetings, resolutions of the board of directors, resolutions of the board of supervisors, and financial accounting reports; as for accounting books, a written request must be made with the purpose stated. If the company fails to respond within 15 days or refuses, you have the right to file a lawsuit. Among the equity disputes involving enterprises in Longhua District handled by Zhiming Law Firm, more than 60% of the parties simultaneously asserted claims for "right to information + profit distribution." However, note that in recent years, Shenzhen courts have rendered different rulings on whether a shareholder's inspection of accounting vouchers includes original vouchers. Before filing the case, it is best to have a lawyer review the wording of your claims for you first, so as to avoid winning the right to information but failing to obtain the actual books.
Your sense of smell is sharper than most people's. A large number of shareholder disputes do not erupt in an instant, but are gradually diluted through three or five small capital increases, and by the time you notice, the 60-day rescission period has often already passed. The three most practical ways to lock in rights in advance are: first, stipulate in the company's articles of association that "capital increases require the unanimous consent of all shareholders," upgrading the default rule under Article 34 of the Company Law to a special agreement; second, sign an acting-in-concert agreement to clearly bind voting rights and prevent the other party from winning over third parties; third, agree on an anti-dilution clause—such as "when subsequent financing dilutes shares, the founder has the right to subscribe for new registered capital at the original price" or "if the company increases capital below net asset value, it shall be deemed as compensation by the major shareholder for the loss of shareholder interests." Guangdong Zhiming Law Firm has been deeply rooted in Shenzhen for 26 years, has handled over 10,000+ cases cumulatively, and has witnessed countless shareholders go from being inseparable to facing each other in court. Lead Attorney Shen Jinlong often says: an agreement is a stop-loss order written before the conflict; if you wait until your partner turns hostile to negotiate, you will either pay a high price or expend great effort.
In equity matters, the most expensive thing isn't the lawyer's fee—it's that feeling of swallowing your pride yet being powerless to turn things around. If you're facing the predicament of equity dilution, being sidelined, or forced out of the company, or even if you just have a vague sense that there's a "hidden trap" in your articles of association or agreements, call 0755-25986969 and talk to Zhiming Law Firm. A phone call isn't expensive. Once you get your questions answered, half of your peace of mind is restored.