On April 7, a case of corporate action validity affirmation and change of corporate register dispute represented by Song & Gu was heard again.

The case is rival claim to company control after inner shareholder dispute. The executive director cancelled the original common seal and made a decision to engrave a new seal. He also recalled the general manager for a new one. The executive director then asked the court to confirm the validity of above decisions and rule that company should change register of legal representative and general manager at local Administration of Industry and Commerce.

The focus of the dispute is: Could the court support a claim to confirm the validity of corporate action?

According to 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), shareholders may start proceedings to invalidate a corporate action, to cancel a corporate action, or to nullify an action. There is no cause of action supporting suing to validate an action. The court of the first trial dismissed the claimant based on provisions.

In S&G lawyers’ opinion, corporate action is under the category of corporate autonomy. In most situations, corporate action has a binding force to all shareholders, and it is unnecessary to confirm its validity through judicial procedure. To see whether judicial procedure is needed, the main test is the justiciability of a claimant and the necessity of remedy through judicial verdict. In other words, if shareholders file a suit on corporate action validity affirmation, the prerequisites must be met, namely that the claimant needs to resort to civil action and needs the final judgement to settle a dispute.

The prerequisites are as follow:

1. There are sufficient evidence to prove that the company action’s validity is not clearly stated and thus gives rise to shareholder dispute.

2. Shareholders’ right or legal status is under real danger or turbulence for unclear validity.

3. It is reasonable to file a suit as a resolution, namely that shareholders’ interest cannot be solved under other supported causes of action.

Only when all prerequisites are met, the claimant over affirmation of the validity of corporate action possesses the necessity of a claimant.