Corporate Governance

Summary and Commentary: Interpretation IV of the PRC Company Law

April 17, 2018 | BY

Andy (Ronghua) Liao, Alan (Chunyao) Lin,

The most updated interpretation of China's company law addresses shareholder rights protection, and other rights and actions related to corporate governance. Although there are noteworthy improvements, including creating a balance between shareholders' ownership rights and preemption rights, practical change is limited and inconsistencies still require clarification.

In August 2017, the PRC Supreme People's Court promulgated the fourth interpretation on the PRC Company Law (Provisions on Several Issues Concerning the Application of the (4), 关于适用《中华人民共和国公司法》若干问题的规定 (四), “Interpretation IV”). The primary goal of Interpretation IV, according to the court, is to supplement the litigation rules relating to shareholder rights protection and generally improve the legal system on corporate governance. To achieve this goal, Interpretation IV provides rules to guide the adjudication of cases in relation to the validity of corporate resolutions, shareholder information rights, profit distribution rights, preemptive rights, and shareholder derivative actions.