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The right to know is the right of shareholders to understand the company's operation. Its significance lies in that for shareholders, it is helpful to protect their own rights and interests to master the company's operation, dividend amount and other important information; For the company, the shareholders' right to know shall not exceed the necessary limit to prevent the company's business secrets and property information from being known by others. For investors, on the one hand, they should be vigilant against the commercial risk of investment failure; on the other hand, they should also guard against the legal risk of "sinking into the sea" of investment and failing to master the company's operation after becoming a shareholder. Therefore, it is very necessary to stipulate the right to know in the investment agreement (this article only aims at the investment agreement in which the target company is a limited liability company).

1. Agreement on the subject exercising the right to know

1 for dormant investors

Under normal circumstances, a dormant investor is not a named shareholder of the company. According to the company law and its judicial interpretation, the right to know is the basic right of shareholders, and a dormant investor cannot directly exercise the right to know. However, according to relevant cases and Adjudication Rules, if the target company and its shareholders know and recognize the dormant investors, and the exercise of the right to know by the dormant investors is legitimate, they should be supported.

(1) The target company and its shareholders know and recognize the dormant investors.

According to (2015) Yan Min Zhong Zi No. 12650 (contained in the selected cases of the people's court, August 2016), the court held that the determination of the shareholder qualification of the actual contributor was to deal with the dispute over the determination of the rights and interests of the company's internal contributors. In view of the entrusted shareholding relationship between the 4 shareholders registered in the industry and Commerce of the target company and the 6 actual contributors, the determination of the shareholder qualification made by the 6 actual contributors to exercise the shareholders' right to know does not involve the interests of a third party other than the company, nor does it undermine the human nature of the limited liability company. Therefore, the six anonymous investors exercise the right to know as shareholders, and their claims should be supported.

Since the company knows and recognizes the existence of dormant shareholders, it should protect the rights of dormant shareholders, and shareholders' right to know is the basic right of shareholders' rights and interests. If the company and its shareholders know and recognize the dormant investors, the dormant investors can directly exercise the right to know. It is suggested that the dormant investors should clearly identify themselves with the target company and its shareholders in the investment agreement and agree on the terms of directly exercising shareholders' rights. The model clauses are as follows:

"The investor and shareholder XXX have a proxy shareholding relationship. The company and other shareholders know and recognize the true shareholder identity of the investor. When the investor requests to be named or exercise the corresponding shareholder rights, the company and other shareholders shall support and assist."

(2) The target company and its shareholders have no knowledge of the dormant investors.

If the target company and its shareholders do not know about the dormant investors, and the two parties have not signed the corresponding investment agreement, then the dormant investors should first show their names before exercising their shareholders' rights, and the showing of names requires the consent of more than half of the shareholders of the target company. This is a ruling rule formed for a long time. The supreme law has confirmed this in the minutes of the Ninth People's Congress, and the conditions and procedures for showing names do not belong to the scope of this article. If the shareholders of the target company do not approve the dormant investor's request for publicity, the right to know is like a tower, which is often beyond the reach of the dormant investor. As the dormant investor has not signed any investment and financing agreement with the target company and its shareholders, the interests of the dormant investor cannot be guaranteed through the investment and financing agreement. At this time, only the proxy shareholding agreement can protect the relevant rights of the dormant investor.

In addition, the dormant investor can require the nominal shareholder to strive for a supervisor seat in the target company. On the surface, the nominal shareholder appoints the supervisor, but in fact, the dormant investor appoints the supervisor. Even the supervisor can be held by the dormant investor himself, while it is much easier for the supervisor to exercise the right to know on behalf of the shareholder.

2. As for the withdrawal shareholder's lawsuit on the shareholder's right to know, the company law takes the shareholder's identity as the condition for the lawsuit, and the withdrawal shareholder who has the shareholder's identity shall reject the lawsuit.

However, under certain circumstances, the withdrawing shareholders can still claim the right to know. According to relevant cases, the withdrawing shareholders hold preliminary evidence to prove that their legitimate rights and interests have been infringed during the period of holding shares, which shall be supported by the people's court. The model terms of the investment agreement are as follows:

"The company and other shareholders shall not infringe upon the legitimate rights and interests of the investors. When the investors no longer have the qualification of shareholders of the company, and there is preliminary evidence that their legitimate rights and interests have been damaged during their shareholding period, they shall have the right to request to consult or copy the company's specific documents and materials during their shareholding period according to law."

3. Entrust others to exercise the right to know

In some cases, shareholders hope to entrust others to exercise the right to know. Whether shareholders can entrust others to exercise the right to know on their behalf is not clearly stipulated by law. Paragraph 2 of Article 10 of the fourth judicial interpretation of the company law only stipulates that where a shareholder inspects the company's documents and materials in accordance with the effective judgment of the people's court, in the presence of the shareholder, it may be assisted by accountants, lawyers and other practitioners of intermediary institutions who have confidentiality obligations in accordance with the law or in accordance with the code of practice. The so-called "act without prohibition" means that investors can agree with the company and its shareholders that the right to know can be entrusted to exercise. The model clauses are as follows:

"The investor may entrust employees of the company or practitioners of intermediary institutions (lawyers, accountants, etc.) with confidentiality obligations to exercise the right to know on behalf of the investor."

(picture from the network)

II. Contents and exercise methods of the right to know

Article 33 of the company law stipulates the content of shareholders' right to know of limited liability companies, and the content of the right to know can be broader in the investment agreement. The model clauses are as follows:

"After becoming a shareholder of the company, the investor shall have the right to know according to law. In addition to the provisions of Article 33 of the company law (or Article 97 of the company law in case of a joint stock limited company), the investor shall also have the right to consult and copy the company's specific documents and materials. The specific documents and materials include but are not limited to accounting vouchers and other materials."

However, expanding the content of the right to know is a double-edged sword. The advantage is that investors can have a more convenient and direct understanding of the company's operating conditions. The disadvantage is that other shareholders of the target company get the same content of the right to know based on this, and there is a risk of disclosing business information and trade secrets. Therefore, it is necessary to impose certain restrictions on shareholders' requests for specific documents. The model clauses are as follows:

"If the investor requests to consult and copy the company's specific documents and materials, he shall make a request and explain the purpose to the company. The methods of making the request include but are not limited to letter, e-mail, telephone and network communication."

III. summary

Indeed, without a perfect system, no matter how perfect the terms, it is impossible to avoid all disputes. For the minority shareholders who are in an unfavorable position under the principle of capital majority decision, they should strive for as many director seats as possible in the investment agreement or the articles of association. If it is difficult, at least one supervisor seat should be guaranteed. After all, it is not easy for the minority shareholders to exercise their right to know, while the supervisors can perform their supervisory duties on the company within their functions and powers.