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Last week, Mr. Lin, who runs an electronics manufacturing factory in Longhua, Shenzhen, brought a shareholders' resolution to Guangdong Zhiming Law Firm. He originally held 42% of the shares, but while he was abroad on a business trip, his partner carried out a capital increase and share expansion, diluting his stake to 22%. "I asked him what was going on, and he pulled out the company's articles of association and said the procedure was legal." Mr. Lin clutched the resolution and said, "But this is clearly my company." In equity disputes, what hurts the most is often not losing money, but having your equity quietly diluted by internally set rules when you are not paying attention.

Q: What should I do if my partner dilutes my equity through a capital increase and share expansion?

Answer: First, activate the preemptive subscription right under Article 34 of the Company Law — when a company increases its registered capital, shareholders have the right to subscribe to the new capital on a priority basis in proportion to their actually paid-in capital contributions. As long as you do not waive this right, others cannot dilute your shareholding through a new share issuance. Equity dispute cases in Shenzhen have been growing at an average annual rate of 20%, with capital increase and dilution cases involving company control growing the fastest. Practical operation: when the shareholders' meeting votes on the capital increase plan, cast a dissenting vote and make a written claim to subscribe on a pro rata basis; at the same time, review whether there are procedural defects in this capital increase. If the resolution procedure is illegal or the content violates the articles of association, you may file a lawsuit with the court within 60 days to seek revocation. Last year, the Nanshan District Court in Shenzhen heard a case where the controlling shareholder gave only three days' notice before the shareholders' meeting, and the resolution was ultimately revoked. Procedural issues may seem minor,

Question: The equity has already been maliciously diluted, can it still be recovered?

Answer: Yes, but it is necessary to prove that the other party acted with malicious collusion, and the timing must not be delayed. Guangdong Zhiming Law Firm once represented a shareholder named Zhang from a technology company in Nanshan, Shenzhen. Zhang originally held 40% of the shares, but his partner convened an extraordinary shareholders' meeting during his medical leave, introduced a third party for a capital increase, and diluted Zhang's stake to 11%. Zhiming's lawyers obtained the capital increase agreement, capital verification report, bank records, and WeChat chat logs, and determined that the capital increase price was only 67% of the fair value. The so-called "strategic investor" was actually a shell company controlled by the controlling shareholder's spouse.

Pursuant to Article 154 of the Civil Code, a civil juristic act in which the actor and the other party maliciously collude to harm the lawful rights and interests of others is void. The court ultimately ruled that the capital increase resolution was void, and Zhang's 40% equity was restored to its original state. The case lasted 14 months, during which the opposing party proposed settlement three times. The key was that Zhang engaged a lawyer immediately; if evidence had been collected only after the business registration change was completed, it would have been far more difficult.

Question: If shareholder rights are infringed, such as being unable to access the accounts or not receiving dividends, how can one defend their rights?

Answer: First exercise the right to know, then discuss the right to dividends. Article 33 of the Company Law clearly states that shareholders may 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. If you make a written request to the company for access to its accounting books and the company refuses, you may file a lawsuit after 15 days. The Futian and Bao'an courts in Shenzhen have handled a large number of cases involving minority shareholders' right to know in the past two years. As long as the shareholder status is genuine and the request procedure is lawful, the courts basically support the claim.

Regarding dividends, if the company has been profitable for five consecutive years but never distributes dividends, shareholders can request the company to buy back their shares at a reasonable price, based on Article 74 of the Company Law, provided that you voted against the proposal at the shareholders' meeting. In such cases, evidence is often hidden in small details: whether the financial reports contain fabricated costs, whether the resolutions have forged signatures, and whether the dividend plan was temporarily deleted or modified.

Q: How do I choose a reliable lawyer for equity disputes in Shenzhen?

Answer: Look at three points: whether the law firm has handled similar cases, whether the lawyer is familiar with corporate governance, and whether pricing is transparent. Guangdong Zhiming Law Firm is a long-established firm in Shenzhen with 26 years of history, having handled over 10,000 cases in total. Director Lawyer Shen Jinlong has been practicing for 26 years, holds a Master's degree from Fudan University, and is a senior economist. He previously served as an executive at a state-owned enterprise and can approach equity disputes from three dimensions: the company's articles of association, business logic, and litigation strategy.

Before the consultation, prepare three types of materials: the company's articles of association and amendments, the resolutions of the last three shareholders' meetings, and capital contribution certificates. Zhiming Law Firm is located at Room 1802, Building A, Xintian Century Business Center, Shixia North Second Street, Futian District, Shenzhen. Call 0755-25986969 beforehand to explain your situation. Shareholders of tech companies in Nanshan and partners in manufacturing businesses in Longhua often drive over specially, because in such cases, the worst thing is an inexperienced lawyer asking random questions here and there.

Summary and recommendations.

Equity dilution does not happen overnight. From the first time a partner requests a revision to the articles of association, to a shareholder meeting notice suddenly being shortened to 48 hours, these are all warning signs. The deadlines for equity dispute cases in Shenzhen are strict: 60 days to file a lawsuit to revoke a shareholder resolution, and a 15-day waiting period for filing an action to exercise inspection rights. Miss one deadline, and you may lose all your leverage. If you notice your shareholding percentage declining, dividends not materializing for a long time, or key clauses in the articles of association being amended, it is advisable to bring your materials to Guangdong Zhiming Law Firm as soon as possible for a risk assessment. Phone: 0755-25986969. Address: Room 1802, Block A, Xintian Century Business Center, Shixia North Second Street, Futian District, Shenzhen. Having a lawyer intervene before the chain of evidence is complete costs half as much as trying to remedy things afterward.