Simon Says: Can a majority shareholder force the company to provide him with corporate security?
This is the fifteenth in a weekly series of legal advice provided in a short and entertaining story format.
This week's areas of Interest: Company, Corporate Law
This week's keywords: Corporation law, Company, Majority Shareholders, Protection of Minority shareholder, Corporate Security
Can a majority shareholder force the company to provide him with corporate security?
Jeff, Alex and Bob own a consulting company in Guangzhou. Jeff holds 80% of the shares, Alex 15% and Bob 5%.
On Jeff’s son’s 20th birthday, Jeff decides to buy his son a new flat. They have their eyes set on a 15 million Yuan flat in West District of Beijing, as that is at where his son studies. However, Jeff only has half of the contract amount, 7.5 mil, so he has to borrow the other half from a bank.
As borrowing money requires a corporate asset as security, Jeff decided to use the office.
Jill, the accountant was reluctant to provide Jeff with the office title certificate. ‘For whom are we providing this security? Don’t we need to first call a shareholder’s meeting?’ She questioned.
‘For me. I am buying a flat for my son. I own 80% of this company and I am the biggest shareholder. A board meeting will provide the same results.’ Jeff replied.
Worried that she might lose her job, Jill did what was told and gave Jeff the office title certificate.
Is what Jeff doing proper?
Prof Simon Says:
No, it is not proper.
Providing any security to a shareholder requires a shareholders’ resolution, and Jeff, being an interested party, is not allowed to vote in this motion. So basically, there is no chance of him getting the corporate security approved unless he can convince Alex and Bob to vote for it, ie the consent of minority.
This is to prevent majority shareholders from abusing their rights and to protect the minority shareholders from any arbitrary decisions of majority shareholders.
For more about this or to contact Professor Simon Choi at www.acmeardent.com, email@example.com, +86 13823677853 or by WeChat: simonhkchoi.
"This article was originally written in Chinese by Mr Huanyu Li and rewritten into English by Simon Choi."
About the Author: Professor Simon Choi
Prof Simon Choi, solicitor and linguist, is an international lawyer, qualified to practise law in England & Wales and in Hong Kong, China. Simon graduated from law schools of the Peking University, the University of London and the University of Hong Kong respectively, with an in-depth knowledge of Chinese laws and common laws and with more than 20 years experience in China practice and international trade, investment, finance, merger & acquisition. He is an adjunct professor of laws at the Zhongnan University of Economics and Law. Simon is the founding partner of Acme Ardent and can be reached at firstname.lastname@example.org or +86 13823677853.