Minority shareholders in China may compel a share buyback for oppression in response to majority shareholder abuse. A shareholder must strategically document the problem, because abusive majority shareholders in China carefully mask their schemes and courts set a high bar for enforcement. There are further legal challenges around proving loss and arriving at a buyback price.

Starting with a representative case, this CBL explainer shows how these shareholder oppression claims work in Chinese courts, and offers strategies for stopping abuse.

Contents

• Case Study: Zhuoda v. Wanhui
• How Does the Share Buyback Remedy Operate in China?
• How Do Courts Determine a Reasonable Price for a Share Buyback in China?

Case Study: Zhuoda v. Wanhui

China’s seminal case on the share-buyback remedy for minority shareholder protection under 2023 China Company Act § 89(c) shows how the law applies.[1] This case is instructive because it shows that you can lose in what would otherwise look like a winning case.

During the trial phase of Sichuan Appeal 10-cv-899 (2020),[2] the court in China denied a minority shareholder’s request for a share buyback as a relief due to insufficient proof of material impairment. This case first cited § 89(c), recognizing a buyback right for eligible shareholders when a controlling shareholder’s abuse materially impairs the company or other shareholders. This provision allows minority shareholders to require the company to repurchase their equity at a reasonable price if a controlling shareholder abuses control and materially impairs their rights.

This case involved the following shareholding situation:

Company at Issue: Sichuan Wanhui Tianda Real Estate Development LLC (Tianda)

Xi’an Zhuoda Real Estate Development LLC: owns 39% (Zhuoda)

Shenzhen Wanhui International Investment Development LLC: owns 51% + 10% through a subsidiary (Wanhui)

Zhuoda alleged that Wanhui abused shareholder rights and harmed Wanhui and the minority shareholders by commingling the companies’ directors, officers, and financial records, causing loss of separate corporate existence; denying inspection rights to books and records; engaging in competing business activities; and related-party transactions, specifically substantial loans from Tianda without shareholder approval. Zhuoda therefore sought an order requiring Wanhui to cease and desist, and repay all loans, and requiring Wanhui to repurchase Zhuoda equity at a reasonable price.

Assessing material impairment requires a multi-factor test, especially as to the abuse, actual loss, and the causal link. Wanhui lent money to the controlling shareholder, Shenzhen Wanhui, and thus obtained the debt claim, which doesn’t show any loss involved. There was no demonstrable loss or causal impact, and thus no material impairment.

Eventually, the court rejected Xi’an Zhuoda Real Estate Development LLC’s requests due to insufficient proof of material impairment and failure to satisfy statutory buyback requirements.

How Does the Share Buyback Remedy Operate in China?

Successfully applying the 2023 China Company Act § 89(c) requires proving controlling shareholder status, abuse of control, and the material impairment of the company or minority shareholders’ rights.[1]

Controlling Shareholder Abuse of Rights

How do Chinese courts identify controlling shareholder status? § 89(c) governs controlling, not ordinary, shareholders; thus, the threshold issue is controlling shareholder status, which under § 265, means having over 50% equity, or otherwise sufficient voting power to materially influence board resolutions.

Example fact pattern: abusing rights to engage in an improper related-party transaction with the company. Improper related-party transactions in China can take several forms, such as below-market asset sales to controlling shareholder affiliates, overpriced affiliate purchases, cost inflation to shift profits, and improper equity dilution. In the above case, Zhuoda alleged that Tianda made a large loan to Wanhui without shareholder approval, amounting to controlling-shareholder fund misappropriation and an improper related-party value transfer. The plaintiff further argued that this transaction materially impaired Tianda’s financial independence and other shareholders’ interests.[2]

In businesses, shareholders commonly borrow from their companies. The issue was whether a large, unauthorized corporate loan to a controlling but non-insider shareholder constitutes abuse. Here, the court said:

“In our view, the current law in China does not bar companies from lending to shareholders, so long as the company completes its internal approval procedures.

The 2023 China Company Act §15 requires shareholder approval and interested shareholders to recuse themselves from a vote on security interests to a shareholder or ultimate beneficiary, but a company can lend to shareholders. A company loan, therefore, complies with related-party procedures under the Act and the articles unless the articles or internal policies impose additional loan rules, such as borrowing caps or approval procedures, which would control. Here, Wanhui loaned substantial funds to Tianda without shareholder approval, but the company completed its internal approvals and recorded the loan in its books.”

Because neither the articles nor the Promoters’ Agreement then required a board or shareholder resolution for shareholder loans, the court held the loan agreement procedurally valid.[1][2]

Procedural compliance alone does not make lending lawful; the lending must also be substantively valid. Here, the court said: “To test whether the lending relationship is bona fide and lawful, courts in China evaluate a loan agreement’s substantive validity by examining:

• the execution of a written loan agreement;
• core terms including principal, interest rate, repayment period, and collateral;
• actual use of the loan proceeds;
• the borrower’s performance of repayment obligations; and
• loan disbursement timing.

The loan agreement’s legality in the case was supported by these facts: the loan amount and purpose are explicit and reasonable; the borrower used the loans to supplement working capital for daily operations and ordinary business needs; the agreement sets interest at LPR plus specified basis points, consistent with market rates for comparable transactions and typical of standard commercial lending; and the agreement provides a reasonable repayment schedule for principal and interest. After execution, Wanhui fully complied with the agreement, making principal and interest repayment on time with no delinquency or default.”

If a company lends to its controlling shareholders, minority shareholders should check whether the loan is both procedurally and substantively valid; otherwise, the transaction may involve legal risks such as controlling-shareholder abuse of rights, sham capitalization, or criminal liability:

Procedural Compliance. A shareholder borrowing from the company complies with related-party transaction procedures under the China Company Act and the articles; the finance department must record the loan under national accounting rules and keep records that are complete, truthful, and accurate.

Reasonable Terms. The company and the shareholder sign a written loan agreement stating the principal, term, interest rate, security status, and loan date; and the shareholder must strictly perform the repayment obligations in the agreement.

Overall, because there are many ways to achieve abuse of rights in corporations, and perpetrators cover their tracks, different judges in China may reach totally opposite conclusions about the same exact controlling-shareholder abuse case. This isn’t irresponsibility, but a reality caused by how judgments require case-by-case analysis using a multi-factor test. There is no specialist nationwide Chancery Court like Delaware’s, instead a multitude of local courts are still waiting on the Supreme Court to offer adjudicative guidelines on how to apply the law on controlling shareholder abuse of rights.

Therefore, if considering whether to pursue a claim, the only way to have a good chance of success is to work with a qualified local attorney in the jurisdiction who has a good idea of how the judge will rule on your claim. Since finding a trustworthy lawyer can be hard, CBL can connect you with one of our professional yet affordable lawyers to assess whether you may be facing controlling shareholder abuse.

Applying the Material Impairment Standard and the Causal Chain

Courts apply a multi-factor test to identify material impairment. Under the 2023 China Company Act §89(c), the plaintiff must prove that the abuse materially impaired the company’s or other shareholders’ interests, not merely caused general harm.[1] The impairment must be directed at those interests and satisfy § 39(a) of the Adjudicative Guidelines to the 2023 China Company Act (Supreme Court, Sep. 30, 2025) (the “Draft Guidelines”), which permit a share buyback demand when the affected party cannot participate in corporate management or obtain investment returns.[3]

Thus, material impairment exists when the shareholder cannot exercise these two major equity rights: voting and dividend rights. Causation must also be proved, and because this is a tort claim, the evidence must show a causal link between the abuse of rights and the impairment.

In the above case, Tianda loaned funds to its shareholder, Wanhui; because Wanhui retained a claim against the shareholder, its assets and financial control were not impaired.[2]

Here, the court in China said, “Loss to company interests means an actual company loss, including loss of owned assets, such as property and intellectual property, and loss of debt claims. Pecuniary obligations refer to monetary obligations or claims convertible into payment. If a debtor temporarily cannot pay because of financial difficulty, the result is a delay, not the impossibility of payment. A loss is realized only if the debtor has no enforceable or distributable assets, a bankruptcy distribution plan is finalized, or principal and interest remain unpaid after reorganization; only then can the company’s interest loss and its amount be established. The loan did not affect normal operations or debt-servicing capacity. Wanhui repaid principal and interest to Tianda on time. “

The court continued, “The evidence did not show that the loan materially impaired the company’s or other shareholders’ interests. Here, material impairment to the company or minority shareholders could be found only if Wanhui defaulted at maturity and caused losses to Tianda exceeding net assets, reducing net assets and cash flow, and accounting for a significant share of the company’s financial indicators.

The 2023 China Company Act provides few quantitative tests for material impairment, while the Draft Guidelines leave shareholder oppression and its severity broadly defined. Whether conduct constitutes material impairment, therefore, remains within judicial discretion and requires substantive case-by-case review. Courts will weigh the following elements to determine whether significant financial losses or substantial deprivation of minority shareholders’ voting or management rights justify relief, including a reasonable share-buyback price:

• the oppression’s nature;
• duration;
• actual harm;
• resulting impact;
• and available remedies under the totality of circumstances.

How Do Courts Determine a Reasonable Price for a Share Buyback in China?

Courts may consider the company-specific and fair market value to determine the share buyback price. The absence of an express rule that defines a reasonable price resulted in inconsistent rulings and complicated buyback disputes. Draft Guidelines § 39(c) sets out a pricing method. Courts set a reasonable share price by weighing:

• the number of shares subject to transfer;
• prior-year company net assets;
• prices for the company’s equity and comparable companies in the past six months;
• and the parties’ arguments.

If that method cannot yield a price, judicial appraisal applies.[3] With listing pricing factors and a fallback option, the provision reduces delay from price disputes and gives minority shareholders in China an enforceable exit.

Conclusion

Minority shareholders in China may seek a share-buyback order compelling the company to purchase their shares at a fair price if they can prove, that controlling shareholders abused their rights, impaired minority voting or dividend rights, and caused that impairment. To do so, minority shareholders need access to company books and records to monitor financial health, track whether controlling shareholders comply procedurally and substantively in daily operations, and document concrete harm or deprivation of voting or dividend rights caused by those acts.

Because this remedy imposes a heavy evidentiary burden, minority shareholders should also consider more efficient alternatives such as negotiation, mediation, or arbitration, and review the Shareholders’ Agreement for contractual protections. If there is strong evidence that a controlling shareholder breached fiduciary duties and caused loss to the company, a derivative suit may also be appropriate.

Overall, securing a share buyback remedy is complex, and CBL can connect you with lawyers who can provide practical solutions.

FURTHER READING

Get more insights on minority shareholder protection in China.

Protecting Minority Shareholders Through Derivative Litigation for Fiduciary Breach

FOOTNOTES

[1] China Company Act (中华人民共和国公司法), (China National Congress, Dec. 29, 2023) (in Mandarin)

[2] Xi’an Zhuoda Real Estate v. Shenzhen Wanhui (西安卓大房地产开发有限公司与温世其、廖宏机、胡锐、杨凤、深圳市万汇国际投资发展有限公司、四川万汇天达房地产开发有限公司、周丽、李治祥、周明、周展洋与内江万汇天达房地产开发有限公司损害公司利益责任纠纷一案二审民事判决书), (Sichuan Neijiang Lower Appeals Court, Jan. 4, 2021) (in Mandarin)

[3] Adjudicative Guidelines 2023 China Company Act (最高人民法院关于适用若干问题的解释（征求意见稿), (China Supreme Court, Sep. 30, 2025) (in Mandarin)