Company Law Draft Judicial Interpretation Part I: General Provisions

The first section of the draft china company law interpretation released by the Supreme People’s Court in September 2025 introduces updated judicial standards for legal representatives, related-party transactions, guarantees, veil-piercing, and shareholder litigation. These revisions align prior interpretations with the amended Company Law and the Civil Code, strengthening coherence in China’s corporate governance framework.

On September 30, 2025, the Supreme People’s Court (SPC) released the Interpretation of the Supreme People’s Court on Several Issues Concerning the Implementation of the Company Law (hereinafter the “draft judicial interpretation”). This 90-point draft represents a comprehensive integration and revision of the existing Provisions on Several Issues Concerning the Implementation of the Company Law (I)–(V), marking the first systematic update to China’s judicial interpretations on the Company Law since their gradual issuance beginning in 2006.

The draft interpretation aims to unify judicial standards nationwide, resolve inconsistencies in the application of Company Law across courts, and adapt legal practice to the evolving realities of corporate governance and investment structures, particularly in areas such as beneficial ownership, defective capital contributions, shareholder disputes, and investor protection. By consolidating prior interpretations and aligning them with the 2024 amendment of the Company Law and the Civil Code, the draft strengthens the coherence of China’s corporate legal framework.

This article is the first in a series on the draft judicial interpretation, outlining the content of the first section of the document on general provisions, covering issues such as related guarantees, related-party transactions, the denial of corporate personality (including among affiliated companies), and the procedural rules governing company resolutions and shareholder litigation.

Resignation and removal of legal representatives

Article 1 of the draft judicial interpretation – a newly-added article – creates a long-awaited procedural pathway for resolving disputes over the resignation or removal of a company’s legal representative, an area that has previously been undefined in the Company Law. It provides that where a legal representative sues the company to confirm the effectiveness of their resignation and to compel the company to update or remove registration information, the people’s court shall accept the case and issue orders based on the company’s behavior.

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If the company appoints a new legal representative within a period designated by the court, it must apply to the registration authority for a change of registration. If the company fails to appoint a successor within that time or refuses to participate in litigation, the court may order it to remove the former representative’s registration information. This cancellation mechanism is significant, as it implicitly recognizes that a company may, for a temporary period, exist without a legal representative, closing a long-standing procedural gap and offering a legal exit route for individuals unable to resign due to a company’s inaction.

The article further clarifies that resignation becomes effective when the company receives the written resignation notice, even before registration changes are made. However, until those changes occur, acts carried out by the former representative in the company’s name remain binding on the company, unless the company can prove that the counterparty knew or should have known of the resignation. This balances internal governance and external transactional security: resignation is effective internally but cannot prejudice the rights of good-faith third parties relying on the public record.

For removal, effectiveness occurs upon the adoption of the company’s resolution, not upon registration. A removed legal representative therefore cannot defend themselves by citing incomplete registration as a reason to continue exercising authority. This distinction between resignation and removal reinforces corporate governance discipline while protecting third-party reliance interests.

Finally, Article 1 affirms that resignation or removal does not absolve liability for actions taken during one’s tenure. This ensures that corporate representatives can exit legitimately but remain accountable for prior conduct, thus protecting both companies and external stakeholders.

External company guarantees

Article 2 of the draft judicial interpretation – a new article – refines how companies provide guarantees, especially when they involve controlling shareholders or their affiliates. Under Article 15 of the Company Law, any company investment or guarantee must follow procedures in the articles of association and guarantees for shareholders or actual controllers require shareholder approval. In such cases, the interested shareholder must abstain from voting, ensuring that related-party guarantees are decided by disinterested shareholders to protect corporate and minority interests.

Building on this foundation, the new judicial interpretation expands Article 15’s scope to address two common but previously ambiguous scenarios.

First, it covers indirect or “hidden” related party guarantees, such as those made for companies controlled, directly or indirectly, by the controlling shareholder or actual controller. Such guarantees often escape formal recognition as related-party transactions.

The interpretation now subjects them to the same approval and disclosure standards as direct guarantees. It also adds a good-faith exception, so that if the counterparty could not reasonably know of the control relationship after due inquiry, the guarantee is not treated as related-party.

Second, it includes equity-acquisition financing guarantees for cases where a company guarantees payment for someone seeking to acquire shares in the company itself or its parent company. These arrangements, which may transfer control using the company’s own assets, can harm the company or minority shareholders. By classifying them as related-party guarantees, the rule ensures proper oversight of control-related transactions.

Related-party transactions

Article 3 refines the legal framework governing related-party transactions involving directors, supervisors, senior executives, or their affiliates. It is built upon Articles 1 and 2 of Company Law Judicial Interpretation (V) and clarifies the consequences when such transactions bypass the required internal approval process.

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Under this provision, if a related-party transaction is conducted without lawful reporting or company approval, the company may request confirmation that the transaction is not binding on it, and the court shall support that claim. Where property must be returned or losses compensated, the handling follows Articles 24 and 25 of the Interpretation of the Supreme People’s Court on the General Provisions of the Contract Law of the Civil Code. These articles establish that, when a contract is void, rescinded, or deemed ineffective, the court should order property restitution or compensation at market value and determine loss compensation and funding costs according to fairness, fault, and the parties’ conduct.

The second paragraph provides a derivative action mechanism: if the company fails to bring suit over a void, voidable, or ineffective related-party transaction, qualified shareholders may initiate litigation on its behalf. This ensures minority shareholders have a means to hold insiders accountable when the company is controlled by those benefiting from the transaction.

The third paragraph further strengthens liability: even if procedural requirements such as disclosure or shareholder approval were met, controlling shareholders, actual controllers, or management must still compensate the company for any resulting losses. Courts will not accept a defense based solely on formal compliance.

Piercing the corporate veil of shareholders

Article 4 allows courts to hold shareholders jointly liable when they abuse the company’s separate legal personality through excessive control, asset commingling, or undercapitalization, causing serious harm to creditors. It sets out specific factors for assessing these abuses:

• Control is excessive if multiple companies lose independent will or improperly transfer benefits;
• Assets are commingled if financial records, personnel, or premises are indistinct; and
• Undercapitalization is judged by the mismatch between invested capital and operational risk, including any deliberate over-indebtedness.

This article, which is a new addition, draws on prior guidance from the Ninth Civil Case Summary and standardizes judicial assessment of veil-piercing claims to protect creditors while providing clear benchmarks for courts.

Disregard of corporate personality among affiliated companies

Article 5 elaborates on Article 23 of the Company Law, which provides that shareholders who abuse the company’s independent legal personality or limited liability to evade debts and harm creditors must bear joint and several liability for the company’s debts. It further specifies that when a shareholder uses two or more controlled companies to engage in such conduct, those companies shall also be jointly liable.

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Building on this foundation, the new provision extends the doctrine of “piercing the corporate veil” to affiliated companies. It stipulates that where two or more companies are under the same controlling shareholder’s direct or indirect excessive control, or where their assets are commingled and indistinguishable, resulting in serious harm to creditors, the court shall support the creditor’s claim for joint and several liability among those companies. Creditors may also invoke Article 23(1) to hold the controlling shareholder jointly liable.

The article further addresses situations involving actual controllers. Where multiple companies are excessively controlled or have commingled assets under a single actual controller, the same principles apply by reference. An alternative draft refines this by distinguishing between two types of actual control:

• Where control is exercised through equity investment, the actual controller may, by analogy to Article 23(1), bear joint and several liability; and
• Where control is exercised through other means, liability should be determined under Articles 180(3), 191, and 192 of the Company Law, which govern the duties and liabilities of controlling shareholders and de facto controllers.

Procedural rules for veil-piercing litigation

Article 6 outlines the procedural requirements for initiating veil-piercing claims. Under this provision, creditors cannot bypass the company and directly sue shareholders or affiliated entities. If a creditor seeks to hold shareholders or related companies jointly liable for a company’s debts without first obtaining a valid judgment confirming the company’s liability, the court must inform the creditor to add the company as a co-defendant. If the creditor refuses, the court shall dismiss the case.

Even when a creditor has obtained a valid judgment against the company, they cannot directly apply to add shareholders or affiliated companies as enforcement targets under Article 23 of the Company Law. Such applications will be rejected by the court, which will advise the creditor to initiate a separate lawsuit. If the applicant disagrees with the court’s decision, they may request a review by a higher court. However, the court will not accept execution objection lawsuits filed directly in this context.

This framework ensures that veil-piercing claims follow proper litigation procedures, preserving judicial order while protecting creditor rights.

One-person companies and shareholder liability

Articles 7 and 8 of the draft judicial interpretation address the financial independence of one-person companies and the scope of shareholder liability in multi-layered ownership structures. These provisions clarify both the burden of proof for demonstrating company independence and the limits of judicial piercing of the corporate veil, providing much-needed guidance for courts, shareholders, and creditors.

Determining the financial independence of a one-person company

Article 7 establishes how a shareholder of a one-person company can demonstrate that the company’s assets are independent from the shareholder’s personal assets. The article outlines two primary methods:

1. By presenting annual financial accounting reports prepared in accordance with legal requirements at the end of the relevant fiscal year. If the shareholder provides these reports, the court may preliminarily accept that the shareholder has fulfilled their burden of proof regarding the company’s financial independence. If creditors challenge the truthfulness, completeness, or accuracy of these reports, the company or shareholder must provide reasonable explanations and supporting evidence.
2. If annual reports are unavailable, the shareholder can provide complete and continuous company financial books and apply for a special audit. In this case, the court may allow this method, with the audit costs borne by the shareholder.

Additionally, the article clarifies that companies owned jointly by a married couple are not considered one-person companies, standardizing judicial practice and ensuring consistent application of the rules for one-person companies.

This article is significant because it formalizes the burden of proof for shareholders seeking to demonstrate the company’s independence. By specifying acceptable evidence and procedures, it provides predictability and clarity for shareholders and creditors alike, while also allowing flexibility where full accounting reports are unavailable through audit procedures. The provision regarding married couples avoids unnecessary application of one-person company rules, ensuring judicial consistency.

Shareholder liability in multi-layered one-person companies

Article 8 addresses the situation where a shareholder of a one-person company is also the sole shareholder of another one-person company, creating a multi-layered ownership structure. The article states that if a creditor sues both the one-person company and its sole shareholder, the court will generally not impose joint and several liability on the shareholder’s own shareholder solely because the shareholder fails to prove independence between the company’s and personal assets.

The only exception is where the conditions for corporate veil piercing under Article 5, paragraph 2 of the draft interpretation are met. This ensures that liability only pierces one layer of corporate personality, preventing excessive litigation burdens on multi-layered one-person company shareholders while still allowing judicial intervention where the legal criteria for disregarding corporate personality are satisfied.

This article is significant because it limits the scope of judicial piercing of the corporate veil, balancing the need to protect creditors with the need to prevent over-extended liability and litigation fatigue for shareholders of multi-layered one-person companies. It clarifies that liability can only extend one level deep, ensuring proportionality and fairness in enforcing shareholder responsibility.

Effect of corporate resolutions

Article 9 refines the rules on litigation concerning the validity of company resolutions, building on Company Law Judicial Interpretation (IV). It clarifies both the scope of judicial review and the standing of litigants.

First, where a court has already confirmed a company resolution as valid, a shareholder may still bring a separate action to revoke it, and the court shall accept such a case; a defense relying solely on the prior ruling of validity will not be supported. An alternative approach proposes that courts should not accept suits to confirm a resolution’s validity at all.

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Second, if a shareholder or director seeks to revoke a resolution on grounds of fraud, coercion, or other Civil Code-based defects in expression of intent, but those defects do not alter the outcome of the vote or the passage of the resolution, the court will not uphold the revocation claim.

Third, the article confirms that only those with a current and direct legal interest, such as shareholders, directors, or supervisors at the time of filing, may bring such actions. Dismissed directors or supervisors lack standing to challenge their own removal.

Finally, it clarifies procedural standing: the company must be the defendant, and other interested parties may join as third parties or co-plaintiffs if they independently qualify.

This structure balances corporate autonomy with judicial oversight, preventing abuse of internal governance disputes while preserving limited remedies for genuine procedural or substantive violations.

Non-justiciability of demands to convene meetings

Article 10, a newly added article, emphasizes the principle of corporate self-governance. It provides that courts shall not accept actions requesting them to order a company to convene a shareholders’ meeting or a board meeting, as such matters must be resolved internally in accordance with company procedures under the Company Law.

At the same time, the article protects against resolutions made in excess of a company’s powers (ultra vires). If the shareholders’ meeting unlawfully delegates powers that by law belong exclusively to the board, or conversely, if it assumes powers that only the board may exercise, such resolutions are invalid. Similarly, resolutions made by either body on matters that do not fall within the scope of company decision-making are void.

Expiration of statutory periods

Article 11 clarifies that when statutory time limits for certain shareholders or corporate actions under the Company Law have expired, the courts shall not support such claims, thereby reinforcing legal certainty and finality in company governance.

The first paragraph addresses two types of time-barred suits:

1. Under Article 26 of the Company Law, a shareholder may request revocation of a shareholders’ or board resolution that violates law, administrative regulations, or the company’s articles of association, but must do so within 60 days from the date the resolution is adopted. If the shareholder was not notified of the meeting, they may request revocation of the resolution within 60 days of learning of it, and in any case no later than one year after it was made.
2. Similarly, under Article 52(3), a shareholder who has lost equity due to failure to pay capital contributions may contest the company’s loss-of-rights notice only by filing a suit within 30 days of receiving it. Once these statutory periods lapse, the rights themselves are extinguished.

The second paragraph extends this principle to shareholders’ repurchase rights under articles 89(2) and 161(2) of the Company Law. These provisions allow dissenting shareholders to demand that the company repurchase their equity or shares at a reasonable price when, for example, the company fails to distribute profits over five consecutive years despite profitability, or decides to merge, divide, transfer major assets, or amend its charter to continue beyond its term. If no agreement is reached within 60 days of the resolution, the shareholder may file a suit within 90 days. Beyond that, the claim is no longer enforceable.

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