I. Basic Facts of the Case
Tan is a shareholder of Company A (a limited liability company) with a shareholding ratio of 49.285%. Company A was established in 2002 with a registered capital of 8.9995 million yuan. Its operating conditions have been continuously good. However, from 2015 to 2019, despite being profitable for five consecutive years and having the conditions for profit distribution, no profits were distributed to the shareholders.
In January 2020, Mr. Tan sent a letter to Mr. Pan, the executive director and supervisor of Company A, requesting to convene a shareholders' meeting in accordance with the Company Law and the company's articles of association to deliberate on the profit distribution matters. However, the executive director and supervisor did not convene the meeting. Subsequently, Mr. Tan convened and presided over an extraordinary shareholders' meeting on his own initiative in accordance with the relevant provisions of the Company Law to deliberate on the profit distribution plan. However, neither the executive director nor the supervisor attended the meeting, resulting in the failure to form a resolution on the profit distribution plan. In June 2020, Mr. Tan sent another letter requesting Company A to purchase the equity held by him, but Company A did not respond within the specified time limit.
Tan X then filed a lawsuit with the people's court, requesting a judgment that Company A should purchase all of the equity held by him for 57,311,950.40 yuan and pay corresponding interest.
II. Focus of Controversy
1. Discuss whether the request for Company A to acquire equity meets the statutory repurchase conditions stipulated in the Company Law;
2. If it meets the criteria, how should the equity acquisition price be determined.
III. Key Points for Judges
After trial, the court held that:
(1) Regarding whether the statutory conditions for share repurchase are met. As the statutory holder of financial records and accounting vouchers, Company A only submitted financial statements for two years and refused to provide complete financial vouchers for other years. Mr. Tan presented tax statements obtained from the tax authority to prove that the company had been profitable for five consecutive years from 2015 to 2019, and the court accepted this evidence. Although Mr. Tan did not formally cast a "no vote," he voted in favor of the profit distribution plan at the temporary shareholders' meeting he convened, which essentially raised objections to the current situation of "no profit distribution." Therefore, he should be considered as a shareholder who cast a dissenting vote against the resolution on no profit distribution. Within 60 days after the shareholders' meeting resolution, he sent a letter to the company requesting a share repurchase, but the company did not reach an agreement with him, thus fulfilling the statutory procedural requirements. Furthermore, the company's long-term failure to distribute profits to shareholders has harmed the interests of minority shareholders, leading to numerous disputes among them. If he does not withdraw, it will threaten the social unity of the limited liability company and result in a corporate deadlock. Therefore, Mr. Tan's request for the company to repurchase his shares is in accordance with Article 74 of the Company Law.
(II) Regarding the determination of the repurchase price. After mutual confirmation by both parties, the equity value is determined based on the formula of "fixed asset value + external claims - external debts". After the third-party appraisal agency evaluated the value of real estate and vehicles owned by Company A and its wholly-owned subsidiaries, the total fixed asset value was 112,527,400 yuan, external claims (other receivables) were 8,387,973.96 yuan, and liabilities were 7,643,321.96 yuan. Therefore, the equity value is 112,527,400 + 8,387,973.96 - 7,643,321.96 = 113,272,052 yuan, and the repurchase consideration that Mr. Tan should receive is 113,272,052 yuan × 49.285% = 55,826,130.83 yuan. Mr. Tan's claim for calculating losses based on four times the one-year loan market quotation interest rate is without legal basis, and the court adjusted it to calculate based on the one-year loan market quotation interest rate.
IV. Case Analysis
(1) Substantive determination of the elements of "voting against" - procedural highlights of this case
Article 74 of the Company Law stipulates that "voting against the resolution of the shareholders' meeting" is a prerequisite for dissenting shareholders to exercise their right to request a buyback. The uniqueness of this case lies in the fact that the company never formed a shareholders' meeting resolution on "not distributing profits" from start to finish - the executive director and supervisor refused to convene and attend the meeting, making it impossible for profit distribution matters to enter into effective voting. If the literal meaning is applied mechanically, Tan has no way to "vote against the resolution", and thus the right to request a buyback cannot be initiated.
Starting from the normative purpose of Article 74, the court held that this article provides an exit relief arrangement for minority shareholders in the context of "capital majority rule". Tan, who voted in favor of the distribution plan at the extraordinary shareholders' meeting, was essentially opposing the status quo of "no profit distribution" and should be identified as a dissenting shareholder. This substantive interpretation rectifies the situation where majority shareholders use passive inaction to circumvent the statutory rights of minority shareholders, and has demonstrative significance for similar cases.
(II) Reasonable allocation of burden of proof
The fact that "the company has been profitable for five consecutive years and meets the conditions for distribution" should have been proven by the shareholders advocating for the repurchase. However, the relevant financial records and accounting vouchers are all controlled by the company, which only submitted financial statements for two years and refused to provide vouchers for the remaining years. Based on this, the court adopted the tax statements obtained by Mr. Tan from the tax authority and confirmed the fact of profitability for five consecutive years. This is a typical application of the rule of "who holds the evidence, who bears the burden of proof for the failure to provide evidence", and it is also the factual basis for the success of this case.
(III) Method for determining the repurchase price
The determination of the buyback price is the focal and difficult point in dissenting shareholder buyback cases. In this case, the defendant argued that "equity value and asset value are not the same concept." After mutual confirmation by both parties, the court determined the equity value based on the net asset calculation of "fixed assets + external claims - external debts," and used the evaluation conclusion issued by a qualified third-party evaluation agency as the basis for determining the value of fixed assets. This approach takes into account both the parties' agreement and the objectivity of the evaluation conclusion, providing an operable path for buyback pricing in similar cases.
(IV) Procedural requirements and "deemed refusal"
According to Article 74 of the Company Law, if the shareholders and the company fail to reach an equity acquisition agreement within sixty days from the date of the resolution passed at the shareholders' meeting, the shareholders may initiate a lawsuit to the people's court within ninety days from the date of the resolution. In this case, the company failed to respond to the letter sent by Mr. Tan within the specified time limit, and the court determined accordingly that the parties had not reached an acquisition agreement and that the procedural requirements had been met. When advocating for a buyback, shareholders should pay attention to the written records of various procedural nodes such as sending and delivering the letter, as well as the deadline.
(V) Corporate deadlock and human cooperation - the value consideration of the court
The judgment explicitly states that there are numerous disputes between Tan and other shareholders of the company. If he does not withdraw, it will endanger the closed nature and human-oriented nature of the limited liability company, potentially leading to a corporate deadlock and affecting normal operations. This reflects that the court regards the dissenting shareholder's right to request a buyback as an important institutional arrangement for resolving corporate deadlocks and smoothing the exit path for minority shareholders. It is noteworthy that Article 89 of the new "Company Law" implemented on July 1, 2024, adds a new provision beyond the original three scenarios: "If a controlling shareholder abuses shareholder rights and seriously damages the interests of the company or other shareholders, other shareholders have the right to request the company to purchase their equity at a reasonable price." This further broadens the exit path for shareholders and is in line with the reasoning of this case judgment.
V. Tips for parties involved in similar disputes
1. If a company has been profitable for five consecutive years but does not distribute dividends, shareholders should promptly send a letter requesting the convening of a shareholders' meeting in accordance with the company's articles of association and the Company Law, and keep complete records of the sending and delivery of the letter.
2. If the executive director and supervisor refuse to convene, the shareholders may convene the shareholders' meeting on their own in accordance with the law. The key lies in obtaining evidence to confirm the expression of intention to "oppose the non-distribution of profits".
3. The repurchase price is the core interest in such cases, and it is necessary to obtain tax reports and financial information as soon as possible. If necessary, apply for judicial evaluation to avoid relinquishing pricing power to the other party.