Guidelines for handling disputes concerning voting rights attached to shares

Within the corporate governance structure of a joint-stock company, voting rights constitute the most fundamental legal instrument through which shareholders exercise ownership and control. However, where such rights are restricted or improperly recognized in violation of statutory provisions, disputes concerning voting rights attached to shares may arise, directly affecting the stability and strategic direction of the enterprise. In order to address these legal complexities, NPLaw provides an in-depth analysis of the underlying causes and proposes effective dispute resolution mechanisms in the article below.

I. Current situation of disputes concerning voting rights attached to shares

In today’s increasingly competitive business environment, the joint-stock company model has become ever more prevalent. Alongside such a development, it also raises complex internal governance issues, among which disputes over voting rights attached to shares are particularly prominent. Voting rights represent one of the most basic and significant rights of shareholders, enabling them to participate in decisions on material corporate matters, ranging from the election of the Board of Directors (BOD) to the approval of business strategies and amendments to the Charter.

In practice, such disputes frequently arise from divergent strategic visions among shareholder groups, personal conflicts, or even deliberate acts of manipulation and oppression by majority shareholders seeking to consolidate control. Typical examples include attempts by controlling shareholders to exclude minority shareholders from the voting list, refusal to provide meeting materials, or intentional delays in convening the General Meeting of Shareholders (GMS) to obstruct the exercise of voting rights. These situations not only undermine internal unity but also adversely affect business operations, corporate reputation, and may lead to protracted litigation.

Accordingly, a thorough understanding of the nature and mechanisms for resolving disputes relating to voting rights attached to shares is essential for all shareholders and enterprises.

II. Concept of disputes concerning voting rights attached to shares

NPLaw recognizes that, in order to safeguard their legitimate interests, shareholders must first grasp the fundamental legal concepts. This section clarifies the legal nature of disputes concerning voting rights.

1. What constitutes a dispute concerning voting rights attached to shares?

A dispute concerning voting rights attached to shares refers to conflicts or disagreements between shareholders, or between shareholders and the company, regarding the determination, exercise, or recognition of voting rights at meetings of the General Meeting of Shareholders or through written resolutions. Such disputes commonly revolve around the number of voting shares, the validity of ballots, the right to attend and speak at meetings, or the legality of resolutions adopted based on voting results.

In essence, it is a form of internal corporate dispute arising from disagreements over the exercise of corporate power through shareholders’ voting rights.

2. What are the common causes of disputes concerning voting rights attached to shares?

Disputes concerning voting rights may arise from both subjective and objective causes, including:

• Shareholder groups pursuing different strategic objectives and orientations for corporate development, thereby seeking to utilize voting rights to advance their respective positions.
• Controlling shareholders intentionally exercising their influence to restrict the voting rights of minority shareholders in order to pass resolutions beneficial to themselves or to strengthen their control.
• Violations of statutory provisions or the company’s Charter.
• Ambiguities in the Charter regarding voting-related matters, leading to inconsistent interpretation and application.
• Unclear share transfer transactions, resulting in disputes over beneficial ownership and the number of shares carrying voting rights.
• Existing internal conflicts that escalate into formal disputes over voting rights as a means of resolving broader disagreements.

The causes of such disputes are therefore diverse, ranging from conflicts of interest to procedural errors or deliberate breaches of statutory and charter provisions.

3. Does preventing a shareholder from exercising voting rights constitute an infringement of shareholder rights?

Any act that prevents or restricts a shareholder from exercising voting rights constitutes a serious infringement of legitimate rights and a direct violation of the Law on Enterprise 2020.

• Firstly, voting rights are fundamental rights of ordinary shareholders, fully protected by law. Pursuant to Point a Clause 1 Article 115 of the Law on Enterprise 2020, an ordinary shareholder has the right to attend, express opinions at GMS meetings, and exercise voting rights directly, through an authorized representative, or via other forms prescribed by law or the Charter. Any act depriving a shareholder of such rights, such as failure to send a meeting notice, refusal to issue ballots, or unlawful removal from the attendance list, constitutes a statutory violation.
• Secondly, such obstruction falls within the category of prohibited acts. Clause 2 Article 16 of the Law on Enterprise 2020 expressly prohibits acts preventing owners, members, or shareholders from exercising their lawful rights and obligations.
• Thirdly, from a legal consequence perspective, infringement of voting rights may result in the annulment of a GMS resolution. Under Article 151 of the Law on Enterprise 2020, within 90 days from receipt of the resolution or meeting minutes, a shareholder may request a Court or Arbitral Tribunal to invalidate a GMS resolution where the procedures for convening or adopting resolutions violate statutory provisions, including failure to ensure attendance and voting rights.

Thus, any act, whether intentional or negligent, that deprives a shareholder of lawful voting rights constitutes a breach of corporate law and may be subject to legal action.

III. Statutory provisions governing disputes concerning voting rights attached to shares

A comprehensive understanding of applicable legal provisions is a prerequisite for resolving disputes over voting rights.

1. How does current law regulate voting rights attached to ordinary shares?

Under the Law on Enterprise 2020, voting rights are fundamental rights of ordinary shareholders, regulated as follows:

• First, regarding principle and method of voting, Point a Clause 1 Article 115 provides that each ordinary share confers one vote. Shareholders may exercise such a right by attending in person, authorizing another person, or voting electronically or by other lawful means pursuant to Clause 3 Article 144. It ensures equal participation in corporate decision-making.
• Second, with respect to voting preference shares under Article 116, such shares confer more votes than ordinary shares, with the specific number determined by the Charter (without statutory cap). However, these shares are limited to organizations authorized by the Government and founding shareholders. Notably, voting preference shares held by founding shareholders are valid only for the first three years and must thereafter be converted into ordinary shares. During such a period, they are non-transferable except by inheritance or court judgment.
• Third, certain shares carry no voting rights. Pursuant to Clause 3 Article 117 and Clause 3 Article 118, holders of dividend preference shares and redeemable preference shares have no voting rights, no right to attend GMS meetings, and no right to nominate candidates to the BOD. Additionally, shares repurchased by the company are deemed unsold shares and carry no voting rights.

In summary, the law ensures equality among ordinary shareholders under the principle that each ordinary share corresponds to one vote.

2. In what circumstances do disputes concerning voting rights typically arise?

Such disputes commonly arise from violations of procedural requirements for convening and conducting GMS meetings, including:

• Preparation of inaccurate shareholder lists in violation of Article 141 of the Law on Enterprises 2020 (as amended), resulting in unlawful exclusion from the voting list.
• Failure to properly send meeting notices and materials in accordance with Article 143, thereby impairing shareholders’ access to information.
• Conducting meetings without satisfying quorum requirements under Article 145.
• Irregularities in vote counting or determination of voting results contrary to Article 148, leading to disputes over resolution validity.

These procedural violations constitute grounds for shareholders to request annulment of GMS resolutions under Article 151.

3. Who is entitled to request resolution of disputes concerning voting rights?

Primarily, shareholders or groups of shareholders whose legitimate rights are directly affected are entitled to initiate proceedings.

Pursuant to Article 151 of the Law on Enterprise 2020, a shareholder or group of shareholders holding at least 5% of the total ordinary shares (or a lower threshold prescribed in the Charter) may request a Court or Arbitral Tribunal to invalidate a GMS resolution.

Lawful transferees or heirs may also initiate proceedings if the company refuses to register them in the Register of Shareholders in accordance with Article 127.

Furthermore, under Clause 4 Article 30 and Article 186 of the Civil Procedure Code 2015, any shareholder able to demonstrate direct infringement of lawful rights may file a commercial lawsuit against the company.

4. Procedures for resolving disputes concerning voting rights

The most common legal remedy is a petition to invalidate a GMS resolution under Article 151 of the Law on Enterprise 2020, within 90 days from receipt of the relevant documents.

Shareholders may choose either:

• Initiating proceedings before a competent People’s Court pursuant to Clause 4 Article 30 of the Civil Procedure Code 2015; or
• Commencing arbitration proceedings where a valid arbitration agreement exists under the Law on Commercial Arbitration 2010.

Strict compliance with statutory time limits and procedural requirements is essential to safeguard lawful rights.

IV. Questions regarding disputes concerning voting rights attached to shares

1. How does prolonged resolution of disputes concerning voting rights attached to shares affect the company’s operations?

Prolonged resolution of disputes relating to voting rights attached to shares may have serious adverse impacts on the company’s operations, including:

• Impact on governance and management: Main resolutions of the General Meeting of Shareholders (GMS) may be delayed or challenged as to their legality. The election, dismissal, or removal of members of the Board of Directors (BOD) and the Supervisory Board may become unstable, leading to internal divisions within the leadership.
• Erosion of reputation and trust: Prolonged internal disputes may damage the company’s credibility in the views of business partners, investors, customers, and employees. It may adversely affect the company’s ability to raise capital, enter into contracts, and retain qualified personnel.
• Financial and time costs: The company and related parties may incur substantial legal expenses, including attorney’s fees, travel costs, and the time required to participate in mediation sessions and court or arbitral proceedings.
• Reduced operational efficiency: Management and staff may be distracted from core business activities due to the need to address the dispute, thereby negatively affecting productivity and profitability.
• Risk of adverse judgments or awards: If a Court or Arbitral Tribunal declares a GMS resolution invalid, the company may be required to reverse previously implemented decisions, causing significant disruption.

Accordingly, disputes concerning voting rights attached to shares should be addressed as a matter of priority and resolved expeditiously in order to minimize negative impacts on the company’s operations and sustainable development.

2. What documents must an enterprise provide when resolving disputes concerning voting rights attached to shares?

In the case of a dispute concerning voting rights, the enterprise must prepare a comprehensive set of evidence to demonstrate that the procedures for convening meetings and counting votes were lawful in accordance with Article 91 of the Civil Procedure Code 2015. Mandatory documents include:

• First, documents establishing shareholder status and voting rights. The most critical document is the Register of Shareholders pursuant to Article 122 of the Law on Enterprises 2020, which determines ownership at the record date. They must be accompanied by the list of shareholders entitled to attend the meeting prepared in accordance with Article 141 of the same Law, and any powers of attorney issued pursuant to Clause 2 Article 144, in order to substantiate that attendees or voters acted with proper authority.
• Second, documents relating to organizational procedures. The enterprise must provide the company’s Charter and evidence that valid meeting notices were duly delivered to all shareholders in compliance with Article 143 of the Law on Enterprise 2020. They serve to prove that shareholders were duly afforded access to information prior to voting.
• Third, documents recording voting results. These constitute the most direct evidence and include the vote-counting minutes and the minutes of the GMS meeting. Pursuant to Points e and g Clause 1 Article 150 of the Law on Enterprise 2020, the meeting minutes must clearly state the number of votes in favor, against, and abstentions for each agenda item. Consistency among the vote-counting minutes, the meeting minutes, and the issued resolution forms the strongest basis for refuting allegations of fraud or irregularities in voting.

The complete and accurate submission of the above documents is a decisive factor in enabling the enterprise to defend itself in disputes concerning voting rights attached to shares.

3. Are disputes concerning voting rights attached to shares required to be resolved by the Court?

Disputes concerning voting rights attached to shares are not mandatorily required to be resolved by the Court. The law encourages parties to reach mutual agreement and provides multiple mechanisms for dispute resolution outside the judicial system.

Firstly, the parties may prioritize negotiation or mediation as internal resolution mechanisms in order to reduce costs and preserve corporate reputation.

More importantly, disputes may be resolved through commercial arbitration instead of court proceedings. Pursuant to Article 151 of the Law on Enterprise 2020, where there are grounds to believe that the procedures for convening a meeting or adopting resolutions violate the Law or the Charter (including violations relating to voting rights), shareholders are entitled to request a Court or Arbitral Tribunal to invalidate the resolution. However, referral to arbitration requires that such a mechanism be stipulated in the company’s Charter or agreed upon by the parties in accordance with the Law on Commercial Arbitration 2010.

Therefore, litigation before the Court is only one available option. Where the Charter designates arbitration as the dispute resolution authority, or where the parties successfully negotiate a settlement, the dispute need not be brought before the Court.

4. Do disputes concerning voting rights attached to shares affect the election or dismissal of company managers?

Disputes concerning voting rights attached to shares have a direct and substantial impact on the election and dismissal of company managers. Pursuant to Article 138 of the Law on Enterprise 2020, the GMS has the authority to elect, dismiss, or remove members of the Board of Directors and members of the Supervisory Board. The exercise of such an authority is conducted through shareholders’ voting rights.

Such disputes may result in the following consequences:

• Delay or cancellation of elections/dismissals: In the presence of serious disputes over voting rights, the convening of a GMS to elect or dismiss managers may be postponed or even cancelled, resulting in vacancies or the unintended extension of the tenure of managers.
• Challenges to the legality of elections/dismissals: Where a meeting for election or dismissal is conducted amid unresolved disputes and a Court or Arbitral Tribunal subsequently determines that voting rights were unlawfully restricted, the relevant resolutions on election or dismissal may be declared invalid.
• Governance instability: Instability in main managerial positions affect the company’s ability to adopt strategic decisions and manage daily operations, potentially leading to internal disorder and fragmentation.

Accordingly, disputes concerning voting rights attached to shares constitute one of the most significant sources of instability within the governance and management system of a joint-stock company.

5. How can enterprises mitigate risks of disputes over voting rights?

Enterprises should:

• Draft a clear and transparent Charter;
• Strictly comply with statutory and charter provisions;
• Ensure transparency in governance;
• Maintain an accurate Register of Shareholders;
• Establish effective internal dispute resolution mechanisms;
• Strengthen the Supervisory Board’s oversight role;
• Seek specialized legal counsel when necessary.

Proactive prevention, transparency, and strict legal compliance are the most effective measures to mitigate risks of disputes concerning voting rights attached to shares.

V. Why seek legal advice from NPLaw in voting rights disputes?

Proper compliance with voting rights regulations not only ensures corporate stability but also demonstrates professionalism and legal responsibility. However, when confronted with disputes concerning voting rights or when shareholders seek to protect their lawful interests self-representation may prove complex and challenging.

If you encounter difficulties in drafting or reviewing the Charter, reassessing governance procedures, or require legal representation in disputes arising from voting rights, please contact NPLaw today.

The foregoing information is provided for reference purposes only. For detailed advice tailored to your specific circumstances, please contact NPLaw for prompt consultation.