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Corporations are the most crucial of market entities. Throughout their life cycle ¨C from establishment, investment, financing and governance to dissolution and liquidation ¨C they can be subject to a wide range of corporate disputes caused by issues like unclear commercial arrangements, unfair distribution of interests, unreasonable governance structures, bad-faith default and infringement.

These disputes commonly include shareholder contribution issues, share transfer disputes, company resolution conflicts, and company dissolution and liquidation controversies. Such disputes usually involve complex legal issues and significant commercial interests, directly affecting a company¡¯s operation and its shareholders¡¯ rights.

The Company Law is a fundamental law of China¡¯s economic system. The 1 July introduction of the new Company Law and its supplementary rules marks a new era in corporate legal systems and practice. It addresses many unresolved issues in judicial practice and proposes a series of new challenges.

The revision process of the new Company Law involved continual interaction among commercial practices, judicial practices and legislative work, with emerging typical cases shaping its development. The following are the main characteristics and trends observed in corporate disputes under the new Company Law.

Dispute evolution

Corporate disputes are evolving, with an increasing variety and complexity. As China¡¯s economy grows and the market environment matures, the number of corporate disputes has steadily risen. Disputes are involving larger sums and greater intricacies.

In addition to traditional disputes like equity and shareholders¡¯ qualifications issues, newer types of corporate disputes have emerged: control disputes, multiple shareholder derivative actions, and the horizontal corporate personality denial.

The new Company Law addresses the developments and changes in evolving judicial practice. For example, it introduces a ¡°two-tier derivative action¡± system.

When directors, supervisors, senior executives or others infringe on the legitimate rights and interests of a wholly-owned subsidiary and cause losses, eligible shareholders of the parent company may file a lawsuit on behalf of the subsidiary.

This provision is a significant step towards establishing multiple shareholder derivative actions within China¡¯s corporate legal system, predictably enhancing the utility of shareholder actions.

Specialisation

Corporate disputes are high risk, highly impactful and require specialised expertise. These disputes are often associated with substantial legal and commercial risks, directly affecting a company¡¯s survival and socio-economic stability.

Once a company becomes embroiled in disputes, it may face many chain reactions such as management crises, business interruptions, employee turnover and a loss of marketplace trust, potentially causing damage to the company, its shareholders and the whole industry.

Due to these characteristics, corporate disputes are much more complex. They demand a high degree of professionalism and often deep knowledge of various legal fields such as corporate law, contract law, securities law and labour law.

Lawyers handling these cases must possess deep legal knowledge and practical experience to conduct accurate legal analyses based on complex statutes and judicial precedents.

They must also consider the company¡¯s commercial objectives and the balancing of interests. With the comprehensive revision of the Company Law, lawyers must quickly grasp the new law¡¯s impact on dispute resolution strategies.

Border crossing

Corporate disputes often involve foreign elements and numerous cross-border legal issues. With the advancement of the Belt and Road Initiative and a deepening of China¡¯s ¡°going global¡± strategy, Chinese companies are increasingly investing overseas and setting up factories, as well as facing a new cycle of establishing red-chip structures for overseas financing.

Consequently, the number of foreign-related corporate disputes is rising annually. These disputes not only involve complex commercial interests and arrangements, but also raise many legal issues like foreign-related jurisdiction, applicable law, cross-border evidence collection, and the recognition and enforcement of judgments and awards across countries.

The new Company Law also addresses the increasing internationalisation of Chinese enterprises. It introduces systems such as classified share systems and the concepts of de facto and shadow directors, drawing from extraterritorial legislative practices.

These provisions facilitate more flexible corporate governance structures while also tightening regulation over controlling shareholders and actual controllers¡¯ behaviour.

In foreign-related corporate disputes, lawyers need extensive experience in international legal services and an ability to mobilise foreign legal resources and relationship connections. This expertise is essential for providing comprehensive, multi-jurisdictional legal support to companies involved in cross-border disputes.

In providing legal services for corporate disputes to a wide range of commercial entities, including domestic and foreign-listed companies, multinational corporations, and state-owned and private enterprises, the dynamic and vitality of the corporate legal system is evident. Handling major, precedential corporate disputes requires lawyers to continually anticipate and summarise the forefront trends in corporate law development.

The new Company Law presents new opportunities for the reform and development of Chinese enterprises, and entrepreneurs can achieve greater commercial success by fully utilising a sound legal framework.

Yi Xiangming is a partner and Zeng Heng is an associate at Zhong Lun Law Firm