Basic facts:
Shenzhen China Electric Lighting Co., Ltd. (CEL) admitted a key employee (the defendant) as its shareholder in August 1996. In January 1999, the defendant quitted the company to pursue study overseas, the company retained the employee’s position and certain benefits on condition that the defendant returns to the company at the end of study. In August 1999, the defendant applied for resignation, and he was supposed to return his share in the company’s capital pursuant to the company’s articles of incorporation on February 1999, however, the defendant not only refused returning his share but also, as found out by the company, 1. used his position in the company to conduct related transactions with a company set up by his wife in order to seek illegal benefit; 2. the defendant set up a lighting company in Australia in May 1999 to carry on businesses same as those of the company while Australia was exactly the region for which the defendant was responsible during his term of office in the company. Accordingly, there was an apparent violation of the company’s non-competition clause. The defendant’s acts violated the company’s relevant regulations, and as a result, the defendant should have his shareholder status terminated and quit the company pursuant to the company’s articles of incorporation.
Court hearing situation: after accepting request from the client, our lawyer XU Xiaofang filed a lawsuit with Futian District People’s Court of Shenzhen moving for an court order that the defendant returns all his share in the company and his shareholder status be terminated (For detailed analysis of the case, please refer to Evaluation of Selected Cases of Shenzhen Courts, Vol. 2002, P369, Analysis of Judge GUO Mingzhong).
Lawyer’s statement:
An equity interest in the capital of a company is not fully equivalent to the ownership in civil law, and it is only a specific ownership which is governed by the Company Law and the company’s articles of incorporation. Equity interest is subject to the overall interest of the company as a whole and relevant company system. Equity interest will inevitably be subject to restrictions in the company’s articles of incorporation, and therefore it is not an absolute right in the sense of property law, accordingly, an equity interest cannot be simply interpreted by the ownership concept in civil law. 
Judgment of court:
The court of first instance ordered that the defendant transfers his share to the plaintiff and the plaintiff pays the transfer price. The court of second instance dismissed the defendant’s appeal and affirmed the decision of the first instance. 
Lawyer’s remarks:
1. The articles of incorporation of a company are not only the rules governing a company’s conduct but also an agreement between the company and its shareholders, on which company operation, shareholders’ rights and obligations are based. Accordingly, the drafting and signing of articles of incorporation do not permit the slightest negligence.
2. From the perspective of company system development, there are two inseparable factors which are the joining of capital and the joining of human. Problems concerning the appropriate restriction and extension of company equity interest and the exiting mechanism of shareholders will become increasingly prominent.