A Flat for the Heir: A Corporate Comedy of Errors

In the bustling metropolis of Guangzhou, there lies a consulting firm with a trio of musketeers at its helm: Jeff, Alex, and Bob. Jeff, the lion’s share owner with a hearty 80% of the company in his pocket, Alex, the modest 15% enthusiast, and Bob, the 5% silent knight, ran their business with a flair for numbers and a penchant for success.

When Jeff’s progeny, the apple of his eye, reached the grand old age of 20, Jeff decided to bestow upon him a princely gift—a brand spanking new flat in the esteemed West District of Beijing. Why there? Because the young heir was brushing up on his studies in the hallowed halls of a nearby university.

One teeny problem: Jeff’s bank account was a wee bit shy of the 15 million Yuan needed to seal this palatial deal. He had but 7.5 million, a king’s ransom, sure, but only half the kingdom he needed. So, it was off to the bank to borrow the rest, with the bank insisting on a corporate asset for collateral.

Enter our diligent bean-counter, Jill, the accountant, guarding the company’s coffers like a dragon over its gold. When Jeff sauntered in, asking for the office title certificate as casually as one might ask for a stapler, Jill’s eyebrows climbed higher than the company’s profit margins.

“For whom are we risking our corporate necks?” Jill inquired, her voice dripping with a cocktail of skepticism and worry. “Shouldn’t we have a pow-wow with the shareholders first?”

“For yours truly,” Jeff proclaimed, puffing up his chest. “I’m securing a regal residence for my boy. Besides, I am the 80% overlord of this enterprise. A meeting of the minds would merely echo my will.”

Jill, caught between a rock and a hard place, feared for her daily bread and reluctantly coughed up the certificate. After all, who was she to deny the biggest piece of the pie his whims?

But let’s ponder for a moment — is Jeff’s royal decree proper, or is this high-stakes Monopoly move a surefire way to pass ‘Go’ and head straight to the courtrooms?

 

Law In A Minute

No, Jeff’s actions are not appropriate. Providing security on behalf of a shareholder necessitates a resolution from the shareholders, and due to his personal interest in the matter, Jeff is disqualified from voting on this particular resolution. Essentially, he has no chance of securing corporate approval for his collateral unless he can persuade Alex and Bob—the minority shareholders—to vote in favor of it.

This requirement serves as a safeguard to prevent majority shareholders from exploiting their power and to protect minority shareholders from potential overreach by those holding a majority stake.

 

Legal Basis

Company Law

Article 16

If a company intends to provide guaranty to a shareholder or actual controller of the company, it shall make a resolution through the shareholder’s meeting or shareholders’ assembly. The shareholder as mentioned in the preceding paragraph or the shareholder dominated by the actual controller as mentioned in the preceding paragraph shall not participate in voting on the matter as mentioned in the preceding paragraph. Such matter requires the affirmative votes of more than half of the other shareholders attending the meeting.