Access to reliable corporate information is particularly important for foreign investors who may not be involved in the day-to-day management of their Chinese subsidiaries or joint ventures. China’s revised Company Law significantly strengthens shareholders’ statutory rights to inspect corporate records, accounting books and supporting documents. At the same time, companies retain certain protections against improper access and misuse of confidential information.
1. What Has Changed under the Revised Company Law?
China’s revised Company Law, effective from 1 July 2024, expands the statutory information rights available to shareholders.
For shareholders of limited liability companies, Article 57 provides the right to inspect and copy the company’s articles of association, shareholder register, shareholders’ meeting records, board resolutions, supervisory board resolutions and financial accounting reports.
More significantly, shareholders may now request access to both accounting books and accounting vouchers. The express inclusion of accounting vouchers is important because these underlying documents can provide a more detailed picture of individual transactions than financial statements or accounting ledgers alone.
For foreign investors, this can be particularly relevant where a Chinese subsidiary or joint venture is managed by another shareholder or a local management team and the foreign shareholder needs to verify financial performance, related-party transactions, use of company funds or other aspects of the company’s operations.
2. Access to Accounting Books and Vouchers Is Subject to Procedure
The right to inspect accounting materials is not entirely unrestricted.
A shareholder seeking access to a limited liability company’s accounting books or accounting vouchers must submit a written request explaining the purpose of the inspection.
If the company has reasonable grounds to believe that the shareholder has an improper purpose and that allowing the inspection could harm the company’s legitimate interests, it may refuse the request. In that case, the company must provide a written response explaining its reasons within 15 days after receiving the request.
If access is refused, the shareholder may bring an action before a Chinese court seeking to enforce its information rights.
This procedure matters in practice. A foreign shareholder should therefore avoid submitting a vague request simply asking to “review all company documents.” The request should identify the documents required and explain the legitimate corporate or investment purpose behind the proposed inspection.
For the company receiving the request, a refusal should likewise not be based on a general concern that the shareholder may obtain commercially sensitive information. The company should be able to identify a credible legal and factual basis for concluding that the request involves an improper purpose.
3. When May a Company Refuse Access?
Chinese judicial rules provide further guidance on what may constitute an improper purpose.
Examples include situations where a shareholder operates, directly or for another party, a business that substantially competes with the company, or where the shareholder seeks accounting information for the purpose of disclosing it to another person in a manner that could harm the company’s legitimate interests.
A previous misuse of information obtained through an inspection may also be relevant when determining whether a new request has an improper purpose.
However, the company’s ability to refuse access should not be treated as a general management discretion.
China’s judicial interpretation also provides that a company’s articles of association or agreements among shareholders should not be used to substantially deprive a shareholder of statutory information rights.
For international joint ventures, this distinction is important. Confidentiality provisions, reserved information arrangements and shareholder agreements can regulate how information is handled, but they should not simply eliminate statutory rights granted under Chinese company law.
4. Professional Advisers Can Assist with the Inspection
One practical improvement under the revised Company Law is that shareholders may engage professional intermediaries, including accounting firms and law firms, to inspect relevant accounting materials.
This can be especially useful for foreign shareholders.
Accounting books and vouchers maintained by a Chinese company may involve Chinese-language accounting records, tax documents, contracts, invoices, bank records and transaction documentation that require professional analysis. Allowing qualified advisers to participate can make the information right substantially more useful than merely permitting the shareholder to view the records personally.
At the same time, both shareholders and their professional advisers must comply with laws relating to state secrets, trade secrets, personal privacy and personal information when inspecting or copying corporate materials.
The Supreme People’s Court has also recognised potential liability where shareholders or professional advisers improperly disclose a company’s trade secrets and cause loss to the company.
Information access should therefore be accompanied by appropriate confidentiality arrangements and document-handling procedures.
5. Shareholders Can Look Through to Wholly Owned Subsidiaries
Another significant development is the extension of shareholder information rights to materials relating to a company’s wholly owned subsidiaries.
Under the revised Company Law, shareholders may request access to relevant information of a wholly owned subsidiary in accordance with the applicable statutory rules.
This provision can be particularly important in complex corporate groups.
A foreign investor may invest in a Chinese holding company while the group’s actual business, assets, employees, intellectual property or revenue-generating operations are located in one or more subsidiaries. If information rights stopped at the holding-company level, the investor might have limited visibility into the businesses that actually create the group’s economic value.
The revised rules therefore provide shareholders with a more effective mechanism for understanding operations below the immediate company in which they hold equity.
The statutory provision specifically refers to wholly owned subsidiaries. Investors should not assume that the same statutory access automatically extends to every partially owned subsidiary or affiliate. Information rights relating to such entities should therefore also be addressed through the articles of association, shareholders’ agreements and transaction documents.
6. Special Rules Apply to Joint Stock Companies
The revised Company Law also strengthens information rights for shareholders of joint stock companies.
Shareholders generally have the right to inspect and copy documents including the articles of association, shareholder register, shareholders’ meeting records, board resolutions, supervisory board resolutions and financial accounting reports.
Access to accounting books and accounting vouchers is subject to an additional ownership threshold. A shareholder, or shareholders acting together, must generally have held at least 3% of the company’s shares continuously for at least 180 days. The company’s articles of association may provide for a lower shareholding threshold.
For listed companies, shareholders must also comply with applicable securities laws and regulations when exercising information rights.
Foreign institutional investors and strategic shareholders should therefore distinguish between the rules applicable to limited liability companies and those applicable to joint stock companies rather than assuming that the same inspection rights apply to every Chinese corporate structure.
7. Managing Information Rights as a Corporate Governance Risk
For foreign investors, stronger statutory information rights provide an important governance tool, but they should not be viewed only as a remedy after a shareholder dispute has arisen.
At the investment stage, shareholders should consider how information will be provided on an ongoing basis and address matters such as management reporting, budgets, audited accounts, bank information, material contracts, related-party transactions and access to subsidiaries in the company’s constitutional and transaction documents.
Where concerns arise during operations, requests for information should be documented carefully and should identify a legitimate purpose and an appropriate scope.
Chinese companies receiving shareholder requests should establish internal procedures for determining which documents must be provided, which materials may be copied, how confidential or personal information should be protected and whether there is a legally defensible basis for restricting access.
Particular care is required during shareholder disputes. Refusing legitimate access may lead to litigation, while providing commercially sensitive information without appropriate safeguards may expose the company to a different category of risk.
The revised Company Law therefore does more than expand shareholders’ rights. It makes information governance an increasingly important part of corporate governance in China.
8. How Xeon & Partners Law Firm Can Assist
Xeon & Partners Law Firm advises foreign investors, multinational companies and Chinese businesses on shareholder rights and corporate governance matters in China.
Our work may include reviewing shareholder information rights before an investment, drafting articles of association and shareholders’ agreements, preparing or responding to formal inspection requests, coordinating financial document reviews with professional advisers, protecting confidential information and representing clients in shareholder information-right disputes.
For foreign investors that do not directly control the daily management of their Chinese investment, effective information rights can be one of the most important mechanisms for identifying governance problems before they develop into major shareholder disputes.