China -  Chinese law firm

How should “difficulty in business management” and “significant losses incurred to the shareholders” be interpreted under Article 183 of the Amended Company Law?

As the provision in Articles 183 is abstract leading to different results when it is applied in the various factual situations of each corporate entity, it is important to follow the legislative intent. “Difficulty in business management” shall not be limited to situations where a company's production and business activities have become paralyzed or to situations where shareholders have incurred excessive losses, but rather shall be interpreted broadly to include any circumstance that creates a deadlock to corporate management or a roadblock to corporate functioning. This could include the inability to hold shareholders’ meetings or reach an effective resolution at a shareholders’ meeting. In the same way, the language "significant losses to shareholders’ interests” shall not be limited to loss of capital return rights, but should be interpreted broadly to also include any circumstance preventing shareholders’ participation in major decision-making activities and the selection of executive officers.

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