Making resolutions without notifying some shareholders to attend the meeting is one of the common situations in disputes involving limited liability companies. Although Judicial Interpretation (IV) of the Company Law further clarifies that shareholders' meeting resolutions with validity defects are divided into three types: non-existent, invalid, and revocable, it does not specify which type the above-mentioned resolutions fall into.

I. Focus of the Issue

Article 22 of the Company Law stipulates:

Resolutions of the shareholders' meeting, general meeting of shareholders, or board of directors of a company that violate laws or administrative regulations in content shall be invalid. Where the procedures for convening a shareholders' meeting, general meeting of shareholders, or board of directors, or the voting methods violate laws, administrative regulations, or the company's articles of association, or the content of the resolution violates the company's articles of association, a shareholder may, within 60 days from the date on which the resolution is made, request the people's court to revoke it.

The difference between an invalid resolution and a revocable one lies in whether the content is illegal or the procedure is illegal. However, the academic circle generally holds that serious illegalities in procedures lead to the non-existence of a resolution, which is different from the revocability of a resolution with minor illegalities in procedures.

Nevertheless, judging the validity of a resolution made without notifying some shareholders to attend still presents the following problems:

1. Such a resolution constitutes a violation of the procedures for convening a shareholders' meeting, but it impairs the common beneficial rights of the shareholders who were not notified, namely the right to vote, the right to make decisions, and the right to participate in company management, which also seems to constitute a violation of content legality.

2. If the resolution is not illegal in other procedures and some shareholders were convened, has it reached the level of serious illegality?

II. Different Judgments by Courts in Various Regions

The People's Court of Jianggan District, Hangzhou City, in its Judgment (2015) Hangjiang Shangchu Zi No. 271 held that the defendant failed to perform the notification obligation and the signature was not that of the plaintiff himself, so the shareholders' meeting resolution was not established, but it did not fall into the category of invalidity.

The Intermediate People's Court of Yulin City, in its Judgment (2013) Yuzhong Min'er Zhong Zi No. 6 held that the act of not notifying some shareholders seriously impaired the fundamental rights of shareholders, namely the right to vote, and should be deemed invalid.

The Higher People's Court of Jiangxi Province, in its Judgment (2017) Ganmin Zhong No. 183 held that only resolutions whose content violates laws and regulations can be determined as invalid. Failing to notify shareholders to participate constitutes a flaw in the convening procedures and voting methods, and since the shareholder did not exercise the right of revocation within 60 days of knowing the content of the above resolution, the resolution shall be valid.

The Intermediate People's Court of Yongzhou City (2015) Yongzhong Fa Min San Zhong Zi No. 77 and the People's Court of Tianxin District, Changsha City (2015) Tianmin Chu Zi No. 04394 also held that failure to notify is a flaw in the convening procedure, and the meeting resolution made shall be revocable.

The Second Intermediate People's Court of Shanghai Municipality, in its Judgment (2013) Hu'er Zhong Min Si (Shang) Zhong Zi No. 188 held that increasing capital without the knowledge of some shareholders deprived the uninformed shareholders of their preemptive right to subscribe for capital increase, and such capital increase act shall be invalid.

III. Analysis of Validity

First, some courts hold that failing to notify shareholders to attend the shareholders' meeting infringes upon the common beneficial rights of shareholders and violates the mandatory provisions of Article 20 of the Company Law, which actually confuses the difference between procedural illegality and content illegality. All non-existent and revocable resolutions, due to procedural illegality, inevitably infringe upon shareholders' rights to participate in expressing opinions and making decisions, but the outcome of these resolutions does not necessarily restrict the rights of non-participating shareholders, or even involve the above-mentioned common beneficial rights, which is the key difference from invalid resolutions. If only some shareholders are not notified to attend the meeting, the resolution shall not be deemed invalid.

Second, the difference between a non-existent resolution and a revocable one lies in the dividing line of "serious procedural illegality", and judicial interpretations and judicial practice tend to adopt a strict stance on the consideration of "procedural illegality". For example, Article 5 of Judicial Interpretation (IV) of the Company Law lists the circumstances for a "non-existent resolution", indicating that serious procedural illegality shall reach the level of "failure to vote on the resolution matter" or "failure to meet the passing proportion", i.e., the level of "failure to make" the resolution. Another example is Article 4 of Judicial Interpretation (IV) of the Company Law, which stipulates:

Where a shareholder requests the people's court to revoke a resolution of the shareholders' meeting, general meeting of shareholders, or board of directors... but the procedure for convening the meeting or the voting method only has minor flaws and does not have a substantial impact on the resolution, the people's court shall not support such request.

In line with this, the Intermediate People's Court of Shiyan City, in its Judgment (2015) E Shiyan Zhong Min San Zhong Zi No. 00216 held that "from the perspective of the legislative purpose of the Company Law and the relevant principles of the Company Law, the main purpose is to protect the legitimate rights and interests of company shareholders and the true will of shareholders". Even the "minor flaws" that lead to the revocability of a resolution should be strictly limited in scope. Whether a resolution is non-existent or revocable shall be determined by the degree to which the procedural illegality causes the content of the resolution to infringe upon the substantive rights of shareholders.

Where the number of voting shareholders and the proportion of equity in the shareholders' meeting meet the provisions of laws and the articles of association, the shareholders who did not receive the notice lose the right to participate in discussions and influence other shareholders, but the impact on the voting result is indirect. The impairment of shareholders' rights caused by such flaws cannot be regarded as serious, which conforms to the characteristics of a revocable resolution.

IV. Doubts about the Extinctive Prescription

Paragraph 2 of Article 22 of the Company Law stipulates that the time limit for filing an action for revocation is 60 days from the date on which the resolution is made. However, since some shareholders are not notified, it is difficult for them to know the resolution and file a lawsuit within 60 days, and the right of revocation in such cases may become nominal.

The author believes that the extinctive prescription for an action for revocation is a product of balancing commercial efficiency and shareholders' interests. It is not uncommon for the right of revocation to not be exercised within the time limit due to various reasons, including objective reasons not attributable to shareholders, not limited to ignorance due to failure to be notified. However, if the substantive rights of shareholders are not seriously affected, there is no premise for commercial efficiency to give way to shareholders' interests. If the content of the resolution violates the mandatory provisions of laws and administrative regulations to the extent that major shareholders abuse their voting rights, the resolution shall be invalid ab initio, not limited to the 60-day extinctive prescription.