This article analyses the case of Ji Min Zhong No. 970 (2024), reviewing the role and significance of “evidence organisation” in the application of law in the case, and examining a practical judicial issue in equity transfer transactions, namely, where the assignee under a contract is not recorded in the target company’s register of shareholders, can the assignee nonetheless obtain shareholder status?
Background to judgment
Previously, in judgment on the case of Ji 04 Min Chu No. 48 (2023), pursuant to the Company Law and article 8 of the Minutes of the National Courts’ Civil and Commercial Trial Work Conference, the court held, among other provisions, that whether an equity transfer has been completed should be determined primarily by changes to the register of shareholders and to the industrial and commercial registration information.
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If the assignee cannot prove that at the time the equity transfer agreement was signed the target company’s industrial and commercial registration, or register of shareholders, had completed the corresponding change, the assignee cannot claim to have acquired shareholder qualification. Nor can it require other shareholders to recognise its shareholder status.
Subsequently, in judgment of Ji Min Zhong No. 970 (2024) reviewed here, the court cited article 32 of the Company Law (2018 revision), stating that entries in the register of shareholders of a limited liability company are rights-creating, meaning that once recorded, they bring the relevant rights or legal relationship into existence.
The effectiveness of an equity transfer contract does not mean that shareholder status transfers automatically. Only after the assignee is recorded as a shareholder in the company’s register of shareholders may it – in the capacity of a shareholder – assert and exercise shareholder rights against the company. A change to the register of shareholders is the marker of the assignee’s acquisition of the equity interest.
However, the court also took into account that the fundamental purpose of updating the register of shareholders is to reflect the company’s formal recognition of the fact of the equity transfer. Accordingly, where internal company documents can prove that the company has explicitly recognised the assignee as a new shareholder, such documents may also produce legal effect in confirming the equity transfer.
A shift in approach
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Compared with the No. 48 judgment, the No. 970 judgment adjusted, by reference to the purpose of the legal facts, the scope of evidence relevant to the facts to be proved: from being limited to the “register of shareholders” to encompassing the “register of shareholders” or other “relevant documents” with equivalent probative force.
This means the register of shareholders is no longer the sole evidentiary basis for determining shareholder status. This change is not self-evident; it reflects a dual adjustment in judicial thinking on legal application and evidentiary logic.
The “proviso” in the No. 970 judgment reveals two core points.
First, a mechanical application of the law, treating the register of shareholders as the sole basis, would lead to manifest unfairness. Through a purposive reading of the intention behind entries in the register of shareholders, the court accepted that other documents reflecting the same intention may also be effective, reflecting a necessary judicial adjustment to legislative form through purposive interpretation.
Second, evidentiary advantage gives the judge both the impetus and basis to adopt a more “legislative” stance and to form judicial conviction. Put differently, only where the evidentiary record is sufficiently complete and reliable can the court look beyond formalities, make a finding under the proviso, and adjust the application of the law.
Evidentiary logic
Evidence is the underlying logic of litigation. In this case, the change in legal application was not a pre-set conclusion; it was a natural extension grounded in facts and evidence. Although the assignee was not recorded in the register of shareholders, the facts of actual performance showed that it acted in the capacity of a shareholder.
Following the path of expressed intent and actual performance – and given that the law does not limit entries in the register of shareholders to being a necessary and sufficient condition for treating a person as a shareholder – the authors organised the evidence by collecting all materials capable of proving its shareholder status and presenting them in order of importance: the target company’s expression of intent; the transferor’s expression of intent; the other shareholders’ expression of intent; the expressions of intent of the actual controllers of each party; and the actual performance of shareholder-status-related matters under the equity transfer agreement – each layer corroborating that the assignee was a shareholder (the No. 970 judgment’s reasoning on shareholder status largely follows this evidentiary sequence).
Taking account of the transaction background and the principles of fairness, good faith and integrity, the authors organised the probative value of the intent reflected in other documents to a level comparable to that of entries in the register of shareholders.
This evidentiary advantage ultimately enabled the court to form inner conviction, triggering an adjustment in the application of law.
Key takeaway
Accordingly, fairness and integrity are the core drivers behind an adjudicator’s choice and application of law. Judgments on fairness or integrity arise from facts and rest on evidence. Evidence, however, does not form naturally; it requires tracing to first principles, intuitive insight and, more importantly, professional organisation and sustained construction.
In addition, concepts matter in this case. Under the law, being recorded in a limited liability company’s register of shareholders is only one fact the court may need to establish; it is not, alone, the issue the court must decide.
That issue, whether the assignee has acquired shareholder status, turns on a set of facts, not a single entry. If those other facts are sufficient and necessary to establish shareholder status, the presence or absence of a register entry does not affect the court’s determination of the issue.
Seen this way, the case broadens conventional understanding of the legal significance of entries in the register of shareholders, and may provide a solid judicial basis for more fine-grained adjustments in future judicial interpretations.
Liu Jun is a senior partner at Kangda Law Firm. He can be reached by phone at+86 137 0100 6607 and by mail at jun.liu@kangdalawyers.com
Jin Ronghua is an associate at Kangda Law Firm. He can be reached by phone at +86 152 1051 3114 and by mail at ronghua.jin@kangdalawyers.com
