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In April 2024, Mr. Wang, a founding shareholder of a cross-border e-commerce company in Futian District, Shenzhen, sat in the reception room of Guangdong Zhiming Law Firm and placed a capital increase agreement on the table. He originally held 40% of the shares, but after two rounds of financing, his equity had been diluted to 18%. His partners, citing "improving decision-making efficiency," amended the company charter to remove the founder's veto power, and the notice for the shareholders' meeting was delivered only 3 days in advance, far shorter than the 15 days stipulated in the charter. Mr. Wang repeatedly asked, "Can I still get this equity back?" This is an extremely typical scene in Shenzhen equity dispute cases.

1. Shenzhen equity dispute cases grow 20% annually, with control rights battles becoming the main battlefield.

Data from the past three years of trials released by the Shenzhen Intermediate People's Court shows that the number of equity dispute cases accepted by the city's courts has been increasing at an average annual rate of 20%. The proportion of cases involving corporate control, malicious capital increase dilution, and restricted information rights rose from 22% in 2021 to 38%. In terms of regional distribution, the three types of enterprise clusters with the highest number of cases are Nanshan Science and Technology Park, Futian CBD, and Longhua Industrial Park. Another set of figures worth noting is that approximately 67% of equity disputes occur between the 3rd and 7th year after a company's establishment. During this stage, the company's valuation rises rapidly, disagreements emerge among the founding team, and the involvement of external capital further complicates the landscape of interests.

问：At what point does equity dilution become "malicious dilution"?答：The law does not set a uniform ratio. The key lies in whether the capital increase protects your preemptive subscription right, whether the pricing is reasonably based on net assets, and whether it alters the original shareholders' controlling position in the company. In judicial practice, if a shareholder is diluted from absolute control to the extent of losing the ability to exercise a veto right, it is generally deemed to constitute fundamental infringement of rights and interests.

II. Three Major Legal "Brake Valves" Against Malicious Dilution of Equity

First, preemptive subscription right.Article 227 of the new Company Law stipulates that when a company increases its capital, shareholders have the right, under equal conditions, to subscribe to the new capital on a priority basis in proportion to their actually paid-in capital contributions. This means that even if partners bring in new investors, you still have the right to subscribe to the newly increased registered capital based on your original shareholding ratio. Only if you do not exercise this right will your equity be diluted. However, in actual practice, many shareholders are completely unaware of the capital increase until it has already been finalized, leaving them with a "fait accompli."

Second, procedural legality review.In many Shenzhen cases where capital increase resolutions were overturned, the core breakthrough points were procedural flaws: for example, the notice period was shorter than stipulated in the articles of association, some shareholders were not notified to attend the meeting, and interested shareholders failed to abstain from voting. Article 63 of the new Company Law requires that all shareholders be notified fifteen days prior to a shareholders' meeting; unless otherwise provided in the articles of association. If a shareholders' resolution is procedurally unlawful, you may, pursuant to Article 26 of the new Company Law, request the court to revoke it within 60 days from the date the resolution was made.

Third, shareholders' right to information.Article 57 of the new Company Law stipulates that shareholders have the right to inspect and copy the company's articles of association, shareholder register, minutes of shareholders' meetings, board of directors' resolutions, board of supervisors' resolutions, and financial accounting reports, and may also make a written request to inspect the accounting books. This right has no shareholding threshold, meaning even a 1% shareholder can exercise it. If the company refuses without justifiable reasons, you may file a lawsuit for the right to information within 15 days in court.

问：A minority shareholder holding 5% of shares, is there any way to inspect the company's books?答：Yes. Article 57 of the new Company Law grants all shareholders the right to inspect books and records, without imposing any shareholding ratio restriction. You only need to submit a written request and state the purpose, and the company must reply in writing within 15 days. If the company refuses on the grounds of "trade secrets," you may file a lawsuit to protect your rights. In the Nanshan District Court of Shenzhen, the success rate for such shareholder right-to-know litigation exceeds 80%.

III. Three-Step Rights Protection Plan After Partners Fall Out

Step 1: Submit a written objection within 10 days and secure the evidence.When you receive a suspicious capital increase resolution, do not just reply "I disagree" in a WeChat group chat. You should draft a written objection letter stating "I disagree with this capital increase plan and hereby exercise my preemptive subscription rights," and send it via EMS to the company's registered address and all shareholders, while also copying it to email addresses and keeping delivery records. This step serves to prove that you have not waived your preemptive subscription rights and also establishes a "time anchor" for any subsequent litigation.

Step 2: Negotiate through a lawyer's letter, seeking a buyback or restoration of the ratio.When handling such disputes, Zhi Ming Law Firm typically analyzes the other party's procedural loopholes and substantive legal violations based on the evidence chain, sends a lawyer's letter to the company, asserts that the capital increase resolution is invalid or revocable, and proposes three solutions: restoring the original shareholding ratio, repurchasing equity at a fair price, and re-signing a concerted action agreement. In Shenzhen commercial litigation, lawyer's letters facilitate settlement in approximately 30% of cases, saving 6 to 9 months compared to direct litigation.

Step three: File a lawsuit, choose the cause of action as needed.If negotiation fails, available causes of action include: requesting revocation or confirmation that the capital increase resolution is invalid, claiming damages for obstruction of preemptive subscription rights, shareholder information rights litigation, profit distribution litigation, and company dissolution litigation. Shareholders holding more than 10% of voting rights may petition the court to dissolve the company pursuant to Article 231 of the new Company Law when serious difficulties arise in the company's management and operation, and continued existence would cause substantial losses to their interests. It should be noted that the revocation action must be filed within 60 days, and the statute of limitations for damages arising from information rights infringement is 3 years.

问：After a lawsuit is filed, will the equity be frozen? Can dividends still be distributed?答：If no property preservation is applied for, the shares will not be frozen, and the company will continue to operate normally. However, to prevent the other party from continuing to increase capital or transferring profits during the litigation, it is recommended that you apply to the court for behavioral preservation at the same time as filing the case, requesting to freeze the registration of capital increase changes. As for the dividend issue, it depends on whether the articles of association and the shareholders' meeting have made a distribution resolution. If the company has been profitable for five consecutive years but has not distributed dividends for five consecutive years, you may request the company to repurchase your shares at a reasonable price in accordance with Article 89 of the new Company Law.

4. Real Case: A Shareholder's Battle to Defend 40% Equity in a Shenzhen Tech Company

Guangdong Zhiming Law Firm's director, lawyer Shen Jinlong, once represented a case involving equity dilution at an artificial intelligence technology company in Nanshan District, Shenzhen. The client, Mr. Chen, held 40% of the shares. His business partners, after notifying him to attend a shareholders' meeting, joined forces with external investors to increase capital and expand shares, planning to compress Mr. Chen's shareholding ratio to 15%. When Mr. Chen received the notice of change registration, there were only 7 days left until the capital increase funds arrived.

After Zhiming Law Firm intervened, they took three actions: First, they immediately sent a letter to the company asserting the preemptive subscription right, clearly stating that they would not waive the subscription quota for the new capital increase; Second, they filed a lawsuit on the grounds that the shareholders' meeting notice procedure had major defects, requesting confirmation that the capital increase resolution was invalid; Third, they simultaneously applied for behavioral preservation to block the industrial and commercial change registration. During the court hearing, the lawyers pointed out that the notice period for the shareholders' meeting was only 3 days, and there was no evidence that Mr. Chen had been effectively served, violating Article 63 of the new Company Law and the 15-day notice period stipulated in the articles of association. In the end, the court adopted the dual claims of "procedural violation + failure to protect the preemptive subscription right" and ruled that the capital increase resolution was invalid, fully preserving Mr. Chen's 40% equity. The case took 11 months from filing to the second-instance judgment, and the equity value increased by

V. In Conclusion: The core of equity rights protection is being "fast, accurate, and steady."

In equity disputes, time is the most expensive cost. A 30-day delay may turn a revocable resolution into an accomplished fact; a late written objection could cause the preemptive subscription right to be lost in vain. Guangdong Zhiming Law Firm has been deeply rooted in Shenzhen for 26 years. Director lawyer Shen Jinlong, with 26 years of practicing experience, holds a master's degree from Fudan University, is a senior economist, and has served as an executive in a state-owned enterprise, well-versed in the dual logic of business rules and judicial practice. Zhiming Law Firm has handled over 10

If you are facing issues such as partner disputes, equity dilution, or deprivation of shareholders' right to information, you are welcome to visit Suite 1802, Building A, Xintian Century Business Center, Shixia North Second Street, Futian District, Shenzhen for an in-person consultation with a lawyer, or call 0755-25986969. Let professional lawyers help you clarify your equity accounts and protect your shareholder rights.