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Abstract

As a basic right of shareholders, the shareholders‘ right to know is of key significance in safeguarding shareholders’ interests and promoting the healthy development of the company. This paper discusses the constituent elements of the shareholders‘ right to know, analyses in detail the subject, object, exercise conditions and other elements, at the same time, argues in depth the legitimacy of the shareholders’ exercise of the right to know, and combines with actual cases to reveal its practical value in corporate governance.

In the modern corporate governance structure, the separation of ownership and management is a significant feature. Shareholders, as the owners of the company, often do not directly participate in the daily operation and management of the company, but entrust the operation right to professional management. While this separation model improves the operational efficiency of the company, it also raises the issue of information asymmetry between shareholders and management. The shareholders' right to know has arisen in such a background, which is an important way for shareholders to understand the company's operation status, financial information and management's decision-making, and is the basis for shareholders to exercise other rights, and occupies a pivotal position in corporate governance.

From the perspective of corporate governance, shareholders' right to know is the key to guarantee the scientific and fairness of corporate decision-making. By exercising the right to know, shareholders are able to obtain the real information of the company, so that they can effectively supervise and evaluate the company's strategic planning, investment decisions, financial situation and so on. When shareholders find that the decisions of the company's management may harm the interests of the company or shareholders' rights and interests, they can, based on the information they have, put forward questions and suggestions through legal channels, prompting the management to adjust its decisions to ensure that the company's operations are in line with the interests of shareholders and the company's long-term development goals. The effective exercise of shareholders' right to know helps to form the internal check and balance mechanism of the company, prevents the management from abusing its power, and guarantees the healthy operation of corporate governance.

From the perspective of shareholders‘ rights and interests protection, shareholders’ right to know is an important weapon for shareholders to safeguard their legitimate rights and interests. In the course of the company's operation, shareholders' rights and interests may be infringed by various factors, such as management's misbehaviour, manipulation by major shareholders, and unfairness in connected transactions. Only by fully understanding the company's situation can shareholders detect these potential risks and infringements in a timely manner and take appropriate measures to defend their rights. If shareholders do not have access to important information such as the company's financial and accounting reports and books of account, it will be difficult for them to judge the company's profitability and assets, and to detect whether the management has committed illegal acts such as misappropriation of the company's assets and misrepresentation of its profits, thus putting their own rights and interests at risk.

I. Analysis of the constituent elements of the shareholders' right to know

(i) Shareholder qualification is the prerequisite for the exercise of the right to know

The qualification of shareholders is the primary premise for determining whether the shareholders have the right to exercise the right to know. In practice, the basis for determining the qualification of shareholders presents diversified characteristics, mainly including the following aspects:

1, shareholders' capital contribution

Capital contribution is the basic obligation of shareholders to the company, but also an important substantive elements of the qualification of shareholders. Shareholders become shareholders of a company by investing capital, physical, intellectual property and other assets into the company and obtaining equity in the company.

2. Resolution of the Company

As the highest authority of the company, the resolution made by the shareholders' meeting of the company has legal effect on the company and shareholders. In some cases, the company's resolution can become the basis for the qualification of shareholders.

3. Shareholder Register

The register of shareholders is a legal document kept by the company to record the name, domicile, capital contribution and certificate number of capital contribution of shareholders. According to the provisions of the company law, the shareholders recorded in the register of shareholders, can claim to exercise the rights of shareholders in accordance with the register of shareholders. The shareholders‘ register has the effect of presumption of rights, i.e. if the shareholders’ register records that a person is a shareholder of the company, in the absence of evidence to the contrary, it shall be presumed to have the qualification of shareholders.

4. Recorded in the company's articles of association

The articles of association are the ‘constitution’ of the company, which make comprehensive provisions for the company's organisational structure, operating rules, shareholders' rights and obligations. The articles of association of the shareholders of the record is one of the important formal elements of the qualification of shareholders.

5、Industrial and commercial registration

Industrial and commercial registration is the legal procedure for the establishment and operation of the company, and has the effect of publicity and credibility. The company's shareholders' information will be registered in the industrial and commercial administration department, including the name of the shareholders, the amount of capital contribution, the mode of capital contribution, the proportion of shareholding and so on. In shareholder qualification disputes, the industrial and commercial registration information can be one of the important evidences, but not the decisive factor. Within the company, the determination of shareholder qualifications should still be based on a combination of substantive and formal elements, such as actual capital contributions and shareholders' register entries.

(ii) Special status of shareholders and the exercise of the right to know

In practice, there are some special status shareholders who face different situations and problems from ordinary shareholders when exercising shareholders' right to know. The following is an analysis of the exercise of the right to information of shareholders with special status, such as shareholders whose shareholdings have been transferred, hidden shareholders, shareholders with restricted rights and shareholders with defective capital:

1. Transferred shareholders

A person who used to hold equity interest in a company, but has now transferred the equity interest to another person and no longer has the status of a shareholder of the company. As to whether the former shareholders are entitled to exercise the shareholders' right to know, there are certain disputes in practice. According to Article 7(2) of the Provisions of the Supreme People's Court on Certain Issues Concerning the Application of the Company Law of the People's Republic of China (IV) (hereinafter referred to as ‘Interpretation IV of the Company Law’), if the company has evidence to prove that the plaintiffs as stipulated in the preceding paragraph do not have the qualification of shareholders of the company at the time of the prosecution, the people's court shall dismiss the prosecution, but the plaintiffs have prima facie evidence that its lawful rights and interests have been harmed during the period of shareholding, except for the request for legal access to or copying of specific documents and materials of the company during the period of its shareholding. This suggests that, in general, former shareholders do not enjoy the right of shareholders to know because they have lost their shareholder status. However, if the former shareholder can provide prima facie evidence to prove that his legal rights and interests were harmed during the period of his shareholding, in order to safeguard his rights and interests, he has the right to inspect or copy the company-specific documents and materials during the period of his shareholding, such as the articles of association, minutes of the shareholders' meeting, financial and accounting reports and so on. For example, the former shareholders in the shareholding period, the company may have hidden profits, misrepresentation of the financial situation of the shareholders, such as damage to the interests of the former shareholders in the discovery of these problems, the former shareholders can be through the exercise of the right to know, access to the relevant documents, in order to obtain the evidence, to safeguard their own legitimate rights and interests.

2. Hidden shareholders

A hidden shareholder is an investor who actually contributes capital to subscribe for the company's shares, but is recorded as someone else in the company's articles of association, shareholders' register and business registration. Usually, there is a shareholding agreement between the hidden shareholders and the explicit shareholders, which stipulates that the explicit shareholders will exercise the rights and fulfil the obligations of the shareholders on behalf of the hidden shareholders. In the exercise of shareholders' right to know, the hidden shareholders face a more complicated situation. Since the hidden shareholders are not the shareholders recorded in the articles of association, register of shareholders and business registration, formally, they do not have the qualification of shareholders and cannot directly exercise the shareholders' right to information in their own name. However, as the actual contributors, the hidden shareholders have the same need to know about the company's operating conditions and financial information. In practice, hidden shareholders can exercise the right to know through the following two ways: first, through the nominal shareholders to exercise the right to know. The hidden shareholders may rely on the nominee shareholding agreement signed with the nominee shareholders to request the nominee shareholders to submit a written application to the company for inspection of the company's documents, and the nominee shareholders shall assist the hidden shareholders in exercising their right to know in accordance with the agreement. The second is to exercise the right to information directly after becoming a shareholder on the register of shareholders through the ‘apparent name’ procedure. The hidden shareholders may, in accordance with Paragraph 3 of Article 24 of the Provisions of the Supreme People's Court on Certain Issues Concerning the Application of the Company Law of the People's Republic of China (III) (hereinafter referred to as ‘Interpretation III of the Company Law’), with the consent of more than half of the other shareholders of the Company, request the Company to change the shareholders, issue certificates of capital contribution, record the change in the shareholders' Register, recorded in the Articles of Association of the Company and registered with the Company's registration authority, and after completing the procedure of ‘manifestation’, the hidden shareholders become shareholders in the legal sense and can directly exercise the shareholders' right to information.

3. Shareholders with restricted shareholders' rights

This refers to shareholders whose rights as shareholders are restricted to a certain extent, e.g., due to equity pledge, judicial freezing, etc. There is no explicit prohibition in the law on the exercise of the right to information of restricted shareholders. The shareholders' right to know is a legal right enjoyed by the shareholders based on their shareholder qualification, with identity attributes, and is independent of other rights of the shareholders. Restrictive measures such as share pledge and judicial freezing mainly target shareholders‘ property rights and disposal rights, without affecting shareholders’ right to know the company's information. Therefore, the restricted shareholders still have the right to exercise the shareholders‘ right to know, and the company cannot refuse their request to inspect the relevant documents of the company on the ground that the shareholders’ rights are restricted. However, in the process of exercising the right to know, the restricted shareholders shall comply with the relevant laws and regulations and the provisions of the articles of association, and shall not harm the legitimate rights and interests of the company and other shareholders. For example, in the access to the company's accounting books, restricted shareholders should explain the legitimate purpose, shall not use the information obtained to engage in acts detrimental to the interests of the company.

4. Defective shareholders

Defective shareholders refer to shareholders who have not paid the full amount of capital contribution in accordance with the provisions of the Articles of Association, or whose property value is significantly lower than the amount set out in the Articles of Association when the capital contribution is made by non-monetary property. Whether defective shareholders have the right to know is also controversial in practice. According to Article 17 of Interpretation 3 of the Company Law, if a shareholder fails to fulfil the obligation of capital contribution or absconds with all the capital contribution, and if the company reminds him to pay or return the capital contribution, and if he fails to pay or return the capital contribution within a reasonable period of time, the company may terminate the shareholder's qualification of the shareholder by a resolution of the shareholders' meeting. However, before the company terminates the shareholder qualification, the defective capital shareholder still has the shareholder qualification and should enjoy the shareholder's right to know. The shareholders' right to know is the inherent right of the shareholders, its purpose is to protect the shareholders to understand the operation of the company, in order to better exercise the rights of shareholders, to protect their own rights and interests. Although the shareholders with defective capital contribution have defects in capital contribution, it does not affect their right to know the information of the company as shareholders. However, the company can be based on the shareholders‘ capital defects, the shareholders’ rights to reasonable restrictions, such as restrictions on the distribution of profits, voting rights, but such restrictions should not be extended to the shareholders' right to know. For example, the defective capital shareholders in the access to the company's financial accounting reports, the company can not refuse to provide the reason that its capital contribution is insufficient, but should be in accordance with the provisions of the law and the articles of association of the company, to provide them with the relevant reports.

Ltd. and qi moumou shareholders right to know dispute [(2020) jing 01 min final 8541] case, the plaintiff qi moumou claim to exercise the shareholders right to know, requesting the defendant qi xi technology (beijing) co., ltd. to provide the articles of association, minutes of shareholders' meeting, board of directors meeting resolution, supervisory board meeting resolution and the financial accounting report for inspection. One of the Defendant's defences was: ’, Qi Moumou's capital contribution is defective and should restrict the exercise of its shareholder rights. Qi Moumou has not completed the paid-in capital obligation, should not only enjoy the rights but not obligations, so its access to the company's accounting books and other information should first complete the capital obligation.’ In this regard, the court after hearing that: ’, the shareholders contribution defect does not directly lead to the loss of shareholder qualification, thus affecting the exercise of the shareholders right to know, so the number of xi company only to qi moumou there is a flaw in the capital for the reason of refusing to exercise the right to know, this court does not support.’

II. Specific contents of shareholders' exercise of the right to know

The shareholders‘ right to know covers a rich variety of contents, aiming to comprehensively protect the shareholders’ understanding of the company's operation status, financial information and other key aspects. According to the relevant provisions of the Company Law, the shareholders' right to know mainly includes the following aspects:

(i) To inspect and copy the articles of association

The Articles of Association is the basic document for the establishment of a company, stipulating the company's purpose, business scope, organisational structure, shareholders' rights and obligations and other important matters, and is the basic guideline for the operation of the company. Shareholders have the right to inspect and copy the articles of association in order to understand the basic rules of the company and the scope of their rights and obligations. Through the inspection and copying of the articles of association, shareholders can supervise whether the operation of the company complies with the provisions of the articles of association and safeguard their own legitimate rights and interests. For example, the articles of association stipulate that major decisions of the company need to be approved by a specific percentage of shareholders, and shareholders can raise objections based on the articles of association when they find that a certain decision of the company has not been passed through the statutory procedures.

(ii) Inspection and copying of minutes of shareholders' meetings

The shareholders‘ meeting is the highest authority of the company, and the shareholders make decisions on major matters of the company by attending the shareholders’ meeting. The minutes of the shareholders‘ meeting are a written record of the process and results of the shareholders’ meeting, including the time, place, topics, shareholders‘ speeches, voting, etc. The shareholders have the right to inspect and copy the minutes of the shareholders’ meeting. Shareholders have the right to inspect and copy the minutes of the shareholders' meeting to understand the formation process of the company's major decisions, to supervise the decision-making behaviour of the company's management, and to ensure that the company's operations are in the interests of the shareholders. For example, if a shareholders' meeting discusses a major investment project of the company, shareholders can understand the details of the project, the basis of decision-making and the opinions of other shareholders by reviewing the minutes of the meeting, so as to judge whether the investment project is reasonable or not.

(iii) Inspection and copying of resolutions of board of directors' meetings

The Board of Directors is the executive body of the Company and is responsible for the Company's daily operation and management decisions. Resolutions of the Board of Directors‘ meetings are the written results of the Board of Directors’ discussion and decision-making on major matters of the Company, which relate to the Company's strategic planning, business development, appointment and dismissal of personnel and other important aspects. Shareholders have the right to inspect and copy the resolutions of the board of directors' meetings to understand the decision-making ideas and implementation of the company's management and to supervise the work of the board of directors. For example, if the board of directors resolves to approve a new business expansion plan, shareholders can assess the feasibility of the plan and its impact on the future development of the company by reviewing the resolution.

(iv) Inspection and copying of resolutions of meetings of the Supervisory Board

The Supervisory Board is the supervisory body of the Company and is responsible for supervising the Company's business management activities and safeguarding the interests of the Company and shareholders. Resolutions of the meetings of the Supervisory Board are an important manifestation of the Supervisory Board's performance of its supervisory duties, including the inspection of the Company's financial status and the supervision of the management's behaviour. Shareholders have the right to inspect and copy the resolutions of the meetings of the Supervisory Board to understand the supervisory work of the Supervisory Board and to ensure that the operations of the Company are carried out on a legal and compliant track. For example, after the Supervisory Board audits the company's financial statements, the resolution will contain an evaluation of the authenticity and legality of the financial statements, and shareholders can understand whether there are any problems with the company's financial status by reviewing the resolution.

(v) Inspection and copying of financial accounting reports

Financial accounting report is a written document reflecting the company's financial position and operating results for a certain period of time, including the balance sheet, income statement, cash flow statement and so on. The financial accounting report is an important basis for shareholders to understand the company's financial condition and operating performance. Shareholders have the right to inspect and copy the financial accounting report to analyse and assess the company's profitability, solvency and liquidity. For example, by analysing the balance sheet, shareholders can understand the company's asset structure and liabilities; by analysing the income statement, they can understand the company's revenues, costs and profitability; and by analysing the cash flow statement, they can understand the company's sources and use of funds.

(vi) Inspection of accounting books of the company

Accounting books are the detailed accounts of the company to record the daily operation activities, including general ledger, detailed account, diary and so on. Compared with the financial accounting report, the accounting books can provide more detailed and specific financial information, which helps shareholders to understand the company's financial status and business activities. Shareholders may request to inspect the company's accounting books, but they should submit a written request to the company, stating the purpose. If the Company has reasonable grounds to believe that a shareholder's access to the accounting books has an improper purpose and may harm the legitimate interests of the Company, it may refuse to provide access and shall reply to the shareholder in writing within fifteen days from the date of the shareholder's written request, stating the reasons. If the company refuses to provide access, the shareholder may request the People's Court to require the company to provide access. For example, if a shareholder suspects that the company has committed financial fraud, in order to verify the situation, he or she may request the company to inspect the accounting books.

It should be particularly noted here that the Company Law makes a distinction between the ways in which shareholders can exercise their right to know. For the articles of association, register of shareholders, minutes of shareholders' meetings and other documents, the law provides that shareholders can “inspect and copy”; while for the company's accounting books, accounting vouchers, it only provides that shareholders can “inspect”. This distinction has led to disputes in judicial practice as to whether ‘inspection’ includes ‘copying’. The Supreme Court made a clear definition of this in its (2020) Supreme Court Enforcement Ruling No. 97.

On 29 December 2018, the Beijing High Court issued the (2015) Gao Min (Commercial) Final Word No. 1169, ordering that: ‘...... Third, Bei Aikang Company shall, within 10 days from the effective date of this judgement, provide the company's accounting books for inspection by Dongfeng Company from June 1999 to the date of entry into force of this judgement. In the course of the execution of the case, Be Aikang filed an objection to the execution, requesting that the Beijing No.2 Intermediate People's Court's consent to Dongfeng's taking extracts from the accounting books be revoked in the course of the execution of the case. The reason for this was that, in the course of the execution, Dongfeng had requested an excerpt from the accounting books, arguing that the excerpt belonged to ‘inspection’ under the judgement, whereas Beyond Health argued that the excerpt did not belong to ‘inspection’. After hearing the case, the Supreme Court held that ‘the extracts are an auxiliary means for shareholders to exercise their right to know and to inspect the accounting books. The shareholders‘ right to know is the shareholders’ right to know the company's information and affairs, which is the shareholders' legal and inherent right. Inspection of accounting books is the way to realise shareholders' right to know.

Third, the legitimacy of the exercise of shareholders' right to know inquiry

(A) the theoretical basis of legitimacy

1, the embodiment of the principle of good faith in the field of commercial affairs

The principle of good faith as a basic principle of civil law, in the commercial field also has important guiding significance, it is throughout the process of the shareholders to exercise the right to know, is to protect the shareholders of the right to know the proper exercise of the cornerstone. In the exercise of the shareholders' right to know, the principle of good faith is embodied in that the shareholders shall exercise their rights in good faith, justly and reasonably, and shall not abuse the right to know to the detriment of the legitimate rights and interests of the company and other shareholders.

In exercising the right to know, shareholders shall truthfully explain the purpose of access to the company and shall not conceal their true intentions or provide false information. If the shareholders use the access to the company's financial and accounting reports, accounting books, etc. as the reason, but in fact for competitors to spy on commercial secrets, such behaviour is obviously against the principle of good faith.

2. The need for checks and balances of rights and interests

In the corporate governance structure, there exists a complex interest relationship between shareholders and the company, which is both interdependent and may generate conflicts. Shareholders as investors in the company, its purpose is to obtain economic benefits through the company's business activities, to achieve the value of assets. As an independent legal entity, the company needs to pursue its own long-term development and stable operation, and in the process of decision-making and management, it may take into account the overall interests of the company, strategic planning and market competition and other factors.

In order to achieve checks and balances of rights and interests, the law imposes appropriate restrictions on the shareholders' right to know. On the one hand, the law grants shareholders the right to inspect relevant company documents, guaranteeing that shareholders can obtain necessary information and exercise their right to supervise the company. On the other hand, the law also stipulates the conditions and procedures for shareholders to exercise their right to know, as well as the circumstances under which a company may refuse a shareholder's request for access. For example, according to the Company Law, if a shareholder requests to inspect the accounting books of a company, he shall submit a written request to the company, stating the purpose. If the company has reasonable grounds to believe that a shareholder's access to the accounting books has an improper purpose that may harm the company's lawful interests, it may refuse to provide access and shall reply to the shareholder in writing within 15 days from the date of the shareholder's written request, stating the reasons.

(ii) Criteria for judging the legitimate purpose

China's laws have made relevant provisions on the legitimate purpose of the exercise of the shareholders‘ right to know, aiming at balancing the interests between the shareholders and the company and ensuring the reasonable exercise of the shareholders’ right to know. The Company Law provides that ‘shareholders may request to inspect the accounting books and documents of the company. If a shareholder requests to inspect the company's accounting books and documents, he or she shall submit a written request to the company, stating the purpose. If the company has reasonable grounds to believe that a shareholder's access to the company's accounting books and documents is for an improper purpose that may harm the company's legitimate interests, the company may refuse to provide such access and shall reply to the shareholder in writing within fifteen days from the date of the shareholder's written request, stating the reasons for the refusal. If the company refuses to provide access, the shareholders may file a lawsuit with the People's Court.’ This provision clarifies the need for shareholders to state the purpose of their access to accounting books, and gives the company the right to refuse access when it reasonably suspects that the shareholder's purpose is improper and may harm the company's interests.

Article 8 of Interpretation IV of the Company Law, the Provisions of the Supreme People's Court on Several Issues Concerning the Application of the Company Law of the People's Republic of China (IV), further refines the circumstances of an improper purpose, stating that: ‘Where a limited liability company has evidence to prove that the shareholders are in one of the following circumstances, the people's court shall determine that the shareholders have the “improper purpose” as stipulated in Article 33(2) of the Company Law ‘improper purpose’: (i) where the shareholder operates his own business or operates for others a business that is in substantial competition with the company's main business, unless otherwise provided for in the articles of association of the company or agreed upon by all the shareholders; (ii) where the shareholder consults the company's accounting books for the purpose of communicating the relevant information to others, which may prejudice the company's lawful interests; and (iii) where the shareholder (c) within three years prior to the date of the request for access to the company, has, through access to the company's accounting books, informed others of relevant information to the detriment of the company's lawful interests; (d) other circumstances in which the shareholders have an improper purpose.’ The judicial interpretation provides a clearer basis for judicial practice to judge whether the purpose of the shareholders' exercise of the right to know is justified by enumerating specific circumstances.

In judicial practice, when judging whether the purpose of the exercise of the right to know by the shareholders is justified, the court will take into account a variety of factors to determine whether the request of the shareholders is in compliance with the provisions of the law and the principle of honesty and good faith. These factors include, but are not limited to, the relationship between the shareholder and the company, the specific content and scope of the shareholder's access, the timing of the shareholder's access, the nature of the company's business and the need for protection of trade secrets. The court will examine whether the shareholder has business activities that are in substantial competition with the company's main business. If the shareholder operates on his own or for others a business that is in substantial competition with the company's main business and there is no reasonable explanation, the court may find that the shareholder has an improper purpose for accessing the accounting books. Whether a shareholder can reasonably explain the purpose of access and the relevance of such purpose to the interests of the shareholder when making a request for access is also an important basis for the court's judgement. If a shareholder is unable to clearly articulate the purpose of access, or if his purpose lacks a reasonable connection to the interests of the shareholders, the court may be wary of his request.

As an example, the case of ‘Li Shujun, Wu Xiang, Sun Jie and Wang Guo Xing v. Jiangsu Jiade Real Estate Development Co. In the case, the four plaintiffs were shareholders of Jiade, holding 54 per cent of the company's equity. The four plaintiffs filed a written request to Jiade Company to inspect and copy all information of the company (including the company's accounting books, original documents, deeds, correspondence, summonses, notices, etc.) in order to understand the actual financial status of the company. Guardian refused to inspect the accounting books on the grounds that the four plaintiffs' inspection had an improper purpose and might harm the legitimate interests of the company and other shareholders. Jiade considered that the application, statement of claim and power of attorney submitted by the four plaintiffs were all signed by Zhang Yulin on behalf of Li Shujun, and Zhang Yulin was the project manager of Guangsha Company stationed in Jiade Company's project and was directly involved in the arbitration case between Guangsha Company and Jiade Company, and that the purpose of the four plaintiffs' inspection of the accounting books was to collect and provide Guangsha Company with the evidence unfavourable to Jiade Company in the arbitration case on the dispute over the project payment.

The Court held that the evidence adduced by Jiade Company was insufficient to prove that the Four Plaintiffs' access to the company's accounting books had an improper purpose and might harm the legitimate interests of Jiade Company. The reasons are as follows: because Li Shujun's shares are transferred from Zhang Yulin, so it is reasonable that he temporarily entrusted Zhang Yulin to sign on his behalf, and Li Shujun himself in the complaint and power of attorney personally signed, indicating that the right to know the lawsuit is the true expression of his intention; the four plaintiffs hold 54% of the equity of Jiade Company, the interests of the four plaintiffs and the Jiade Company are fundamentally the same. Eventually, the court ruled in favour of the four plaintiffs to access the company's accounting books and other information.

As can be seen from the case, the Court, in determining whether the purpose of the shareholders‘ exercise of the right to know was proper, focused on examining whether the evidence provided by the company could sufficiently prove the existence of the shareholders’ improper purpose. The company only on the basis that the shareholders and outsiders have some kind of connection, and suspected that the shareholders access to the purpose is for outsiders to collect evidence against the company for the reason of refusal to access, in the case of insufficient evidence, the court did not support. This reflects that in judicial practice, for shareholders to exercise the right to know the legitimacy of the purpose of the judgement, need to follow the strict rules of evidence, the company needs to bear the burden of proof, prove that the shareholders have an improper purpose and may be detrimental to the legitimate interests of the company. Only if the company provides sufficient evidence will the court find that the purpose of the shareholders‘ access is improper, otherwise the shareholders’ right to know should be protected.

(III) Determination of improper purpose in the exercise of shareholders' right to know

1. Common situations of improper purpose

In the process of shareholders' exercise of the right to know, there are a variety of situations that may be recognised as having an improper purpose, which seriously damage the legitimate interests of the company, undermine the foundation of trust within the company and affect the normal operation of the company. According to Article 8 of Interpretation 4 of the Company Law and relevant judicial practice, the following are several common situations of improper purpose:

(1) Competition related to the same business: if the shareholder operates his own business or operates for others a business that has a substantial competitive relationship with the company's main business, in this case, the shareholder's access to company documents may be for the purpose of obtaining the company's commercial secrets, customer information, technical data, etc., thus providing an advantage for his own or other's competing business and damaging the company's interests.

(2) Information notification damaging to the company's interests: shareholders who consult the company's accounting books in order to notify others of relevant information may damage the company's legitimate interests. Shareholders may disclose sensitive information such as the company's trade secrets, financial status, and undisclosed major decisions to the company's competitors, partners, or other third parties, thereby adversely affecting the company.

(3) Past Acts of Damaging the Company's Interests: Within three years prior to the date of the shareholder's request for access to the company's accounting books, the shareholder has harmed the company's legitimate interests by accessing the company's accounting books and communicating the relevant information to others. This situation indicates that the shareholder has previously abused the right to know, causing damage to the company, and the access request may again be for a similar improper purpose.

(4) Other improper purposes: In addition to the circumstances explicitly listed above, there are also some other circumstances that may be considered as improper purposes, which need to be comprehensively judged based on the facts and evidence of the specific case. For example, in order to extort the company operator, the shareholders intentionally look for minor technical defects in the company's operation and access the company's documents in order to obtain the relevant evidence; in order to interfere with the company's normal business order, the shareholders frequently put forward unreasonable requests for access and so on.

2, the company's defences and burden of proof

When the company believes that the shareholders exercise the right to know the existence of improper purpose, can be defended in accordance with the law, in order to safeguard the legitimate rights and interests of the company. When defending, the company needs to follow certain procedures and requirements, and bear the corresponding burden of proof.

The company shall respond within the statutory period after the shareholder has made the access request. According to the Company Law, the company shall respond in writing to the shareholder within fifteen days from the date of the shareholder's written request with reasons. If the company fails to respond within the stipulated time, it will be deemed to have refused access, and the shareholder may file a lawsuit with the court on this basis. In its reply, the company shall clearly state the reasons for refusing access, i.e., it shall set out in detail the basis and evidence on which the company believes that the shareholder has an improper purpose.

In terms of burden of proof, the company bears the burden of proving that the shareholder has an improper purpose. This is because the company, as the holder of the information, is in a better position than the shareholders to obtain and provide relevant evidence. The company needs to provide sufficient and conclusive evidence to prove that the shareholder's purpose of access may harm the company's legitimate interests. Such evidence may include, but is not limited to, business records, cooperation agreements, correspondence and emails between shareholders and competitors to prove that the shareholders have a competitive relationship; evidence of shareholders informing others of the company's sensitive information, such as chatting records, email exchanges, witness testimonies, etc.; evidence of the shareholders' past actions that harmed the company's interests, such as court judgments, administrative penalty decisions, records of the company's internal investigations etc.

In the case of ‘Dispute between Fan Moumou and Company A's Shareholders’ Right to Know’, Fan Moumou was a shareholder of Company A, as well as a shareholder of Company B. The business scope of Company B as set out in Company B's industrial and commercial registration materials was the same as, or similar to, the main part of Company A's business scope as set out in a copy of Company A's business licence. Company A claimed that Fan Moumou's access to the company's accounting books had an improper purpose and might damage the company's legitimate interests. In the course of the litigation, Company A provided Company B and Company A's business contract, market research report and other evidence to prove that the two companies in actual operation of the competitive relationship, and Company B in the market to adopt similar marketing strategy with Company A, competing for the same customer base. However, Fan claimed that Company B did not operate the same or similar business as Company A in practice, and provided evidence such as Company B's business statements and customer lists to prove that there were differences between Company B's main business and Company A's, and that Company B had changed its scope of business during the litigation period, which was no longer the same as that of Company A. In the end, the court integrated the evidence provided by both parties, and held that company A's defence of the existence of an improper purpose for Fan could not be established, and ruled in favour of Fan's litigation request.

From the above cases, it can be seen that the burden of proof is crucial when a company defends on the ground that a shareholder has an improper purpose. The company must provide sufficient and effective evidence to prove that the shareholder's purpose of access may harm the company's legitimate interests. If the company fails to provide sufficient evidence, it will be difficult for the court to support its defence claim and the shareholders' right to know will be safeguarded. Therefore, in its daily operation, a company should strengthen its attention to the behaviour of its shareholders and the collection of evidence so that it can effectively defend its legitimate rights and interests when necessary.

IV. Legal Protection and Remedies for the Exercise of Shareholders' Right to Information

(A) the legal provisions of the shareholders' right to information protection

China's company law and relevant judicial interpretations to build a more complete protection system of shareholders‘ right to know, from a variety of aspects of the exercise of shareholders’ right to know the scope of the procedures and the company's obligations to cooperate, for the realization of the shareholders' right to know provides a solid legal basis.

In terms of the scope of exercise, the Company Law clearly stipulates that shareholders have the right to inspect and copy the articles of association, minutes of shareholders' meetings, resolutions of the board of directors, resolutions of the supervisory board and financial and accounting reports. As for the company's accounting books, shareholders have the right to inspect them, although they do not have the right to make copies. This series of provisions covers the key information of the company's operation, enabling shareholders to have a comprehensive understanding of the company's decision-making process, financial status and operating results. Shareholders of a limited liability company may also request access to the company's accounting documents, further expanding the ways in which shareholders can understand the details of the company's finances.

In the exercise of the procedure, the law has made special provisions for shareholders to inspect the accounting books of the company. When requesting access to the company's accounting books, shareholders shall submit a written request to the company with a detailed explanation of the purpose. The purpose of this procedural requirement is to enable the company to know in advance the intention of the shareholders to access, so as to make relevant preparations, but also to provide a basis for the company to judge whether the purpose of the shareholders to access is justified. Upon receipt of a shareholder's written request, if the company has reasonable grounds to believe that the shareholder's access to the accounting books has an improper purpose that may harm the company's legitimate interests, it may refuse to provide access. However, the company must reply to the shareholder in writing within fifteen days from the date of the shareholder's written request and state the reasons. This provision not only gives the company a reasonable right of defence, but also restricts the company's arbitrariness in refusing access to ensure that the shareholders' right to know will not be deprived of for no reason.

Relevant judicial interpretations have further refined the safeguards for shareholders' right to know. The Company Law Interpretation IV clarifies and regulates the scope of shareholders' access to company documents and materials, the manner of access, the time and place of access, and other specific matters. The Judicial Interpretation stipulates that the people's court hearing the case of shareholders requesting to inspect or copy specific company documents and materials, and supporting the plaintiff's litigation request, shall specify in the judgement the time and place for inspecting or copying specific company documents and materials and the directory of the specific documents and materials. Shareholders based on the effective judgement of the people's court to access the company documents and materials, in the presence of the shareholders, can be accountants, lawyers and other intermediaries in accordance with the law or according to the code of conduct of the intermediary institutions with the duty of confidentiality to assist. This provision not only provides more specific operational guidelines for shareholders to exercise their right to know, but also provides a legal basis for shareholders to use the help of professionals in the process of inspection, which helps shareholders to understand the company's financial information and operation more accurately and deeply.

(ii) Remedies for infringement of shareholders' right to know

When the shareholders' right to know is infringed upon, the law gives shareholders a variety of remedies to safeguard their legitimate rights and interests. Litigating in court is the most important remedy for shareholders. Shareholders can file a shareholder's right to know lawsuit to the People's Court with the company as the defendant in accordance with the relevant provisions of the Company Law. During the litigation process, the shareholders need to prove that they have the qualification of shareholders of the company, and that the company has refused to allow them to inspect or copy the relevant documents and materials, or has failed to provide the relevant documents and materials in accordance with the provisions of the law. If the shareholders can provide sufficient evidence to support their claims, the court will judge the company to fulfil its obligation to provide access to and copy the relevant documents and materials.

In addition to requesting the company to provide access to and copy the relevant documents and materials, the shareholder may also request the company to bear the losses caused to the shareholder as a result of the infringement of the right to know. If the shareholders are unable to understand the company's operating conditions and financial information in a timely manner due to the company's refusal to provide access to or copy the relevant documents and materials, thus making wrong decisions and causing economic losses to the shareholders, the shareholders may request the company to bear the liability for compensation. In determining the amount of compensation, the court will usually take into account factors such as the actual loss suffered by the shareholders and the degree of fault of the company.

Shareholders may also request the company to supervise and correct the company's infringement of shareholders' right to information by reflecting the situation to the company's internal supervisory body. For example, a shareholder may lodge a complaint with the supervisory board of the company, requesting the supervisory board to investigate the company's behaviour and take measures to safeguard the shareholder's right to information. As the supervisory body of the company, the supervisory board has the duty to safeguard the legitimate rights and interests of the company and the shareholders, and to supervise and rectify the company's behaviour that infringes on the shareholders' right to know. If the supervisory board can actively perform its duties and urge the company to correct its wrongful acts, it will help to resolve the dispute over shareholders' right to know and maintain harmony and stability within the company.

To sum up, as an important right of shareholders, shareholders‘ right to know, its constituent elements and the legitimacy of its exercise are of vital significance to corporate governance and the protection of shareholders’ rights and interests. Clarifying the constituent elements of the shareholders‘ right to know helps to accurately judge whether the shareholders have the right to exercise the right to know and safeguard the legitimate exercise of shareholders’ rights. Exploring the legitimacy of the exercise of shareholders' right to know can balance the interests between shareholders and the company and promote the healthy and stable development of the company. In practice, the relevant legal provisions and judicial experience should be strictly followed to ensure the effective exercise of shareholders' right to know and safeguard the legitimate rights and interests of the company and shareholders.