Influencers, traffic, brands and platforms are widely understood aspects of the influencer economy. However, what is less known to the public are the policy and the core technologies behind the influencer economy – such as communications technologies, network technologies, big data and cloud computing. The often-invisible technology and its providers, multi-channel network companies (MCNs), tend to be the forces that sustain an influencer. As a result, the business model between an influencer and an MCN directly affects the life cycle of their relationship. This article explores the rules for decomposing control of non-controlling shareholders at MCNs and the significance of a related case, in the hope of providing some reference for MCN governance.
Case briefing
Partner
Kangda Law Firm
Tel: +86 10 5086 7666
E-mail:
jun.liu@kangdalawyers.com
On 10 October 2021, Li Ziqi, a Chinese influencer, filed a lawsuit against Hangzhou Weinian Brand Management, the MCN company controlling Li Ziqi’s IP, and the company’s legal representative, regarding a disputed amount of RMB647 million (USD90 million). This lawsuit quickly made headlines as a battle unfolded between the influencer and the MCN behind her, threatening both parties as well as the “Li Ziqi” and “Ziqi” brands.
Representing Kangda Law Firm, the author was entrusted by Weinian and its legal representative as their legal consultant and attorney. According to the articles of association of Sichuan Ziqi, the company jointly established by Li Ziqi and Weinian, Li Ziqi holds 49% of the shares, and Weinian holds 51%. Sichuan Ziqi has no board of directors. Li Ziqi serves as the executive director and legal representative. The dispute between the two parties seems contractual, but the actual legal relations are far more complicated, covering various aspects including trademark rights, debt chains, stores, IP rights, infringement and company control.
Significance
This case happened to coincide with the boom in China’s influencer economy, which attracted wide attention. The professionally operated “Li Ziqi” and “Ziqi” brands were already top brands back then, and Li Ziqi was also one of the top influencers. Therefore, this case was bound to affect fans’ understanding of the state of the industry, and whether the relationship between MCNs and the influencer economy could be purely economic rather than also ideological.
It takes time, and human and material resources for such a relationship to be harmonious and symbiotic. If any party doesn’t understand or has the wrong understanding, the parties might enter into a dispute. Therefore, managing disputes, and limiting or balancing the control of the parties over the company is crucial.
Company control
The control over a company can be reflected in various aspects, such as the shareholders’ meeting, the board of directors, senior executives, legal representatives, company certification and licensing, and company finance. Shareholders holding less than 50% of the shares and less than 50% of the voting rights are non-controlling shareholders. It is difficult for non-controlling shareholders to obtain control over decision-making matters in shareholders’ meetings, as that requires more than 50% of the shares held by participating shareholders to agree and pass a matter. That being said, if a non-controlling shareholder serving as the director is also the legal representative of the company, and controls the company’s certification and licence, the shareholder has de facto control over the company’s ability to act as a legal person. Therefore, the non-controlling shareholder may, based on certain specific matters, bring up disputes or actions that may jeopardise the company’s existence. Under such circumstances, it is important in both business and judicial practices to understand the rules for decomposing control over a company.
Rules for decomposing control
Shareholders can enter into a separate agreement to amend the rules stipulated in the articles of association concerning changing the legal representative. The legal representative represents the legal person externally and has strong legal significance. If a lawsuit is filed in the name of the company rather than the shareholder, whoever is the legal representative will have the ability to act for the company in lawsuits. In that case, it is difficult for controlling shareholders to intervene through shareholders’ meetings in a short time, especially when there are disagreements among shareholders. Therefore, if the shareholders enter into a separate agreement to amend the rules stipulated in the articles of association regarding the legal representative’s appointment, it will bring quick relief to controlling shareholders.
In this case, the rules stipulated in the articles of association regarding the legal representative’s appointment were amended through a separate agreement, thus changing the executive director to the general manager. The board of directors passed a resolution to appoint a general manager, bypassing the shareholders’ meeting resolution to change the legal representative and the restriction that an amendment to the articles of association must be passed by shareholders holding more than two-thirds of the voting rights. Under the Regulations on Company Registration, this move is more likely to change the legal representative on site.
Changing the legal representative will limit the original legal representative’s possession and use of the company’s certification and licence. According to the articles of association, the legal representative is the legal entity responsible for the custody and use of the company’s certification and licence. A legal and contractual change of the legal representative will effectively limit the original legal representative’s possession and use of the certification and licence, helping to determine bad faith should he or she use the company’s certification and licence subsequently, offering evidence to support a claim against that original representative to return the certification and licence.
Conclusion
The parties involved in this case finally reached a settlement through mediation, which meets the common expectation in both business and legal terms to reach a mutual understanding without litigation, especially if the core interests of the relevant parties are protected. Moreover, the parties to the case also deepened their mutual understanding, realising empathy and co-operation at a higher level.
Liu Jun is a partner at Kangda Law Firm. He can be contacted on +86 10 5086 7666, or by e-mail at jun.liu@kangdalawyers.com
