Guidelines on Protection of Investor Rights and Interests
for Small and Medium-sized Enterprises Board
Chapter I General Provisions
Article 1 These Guidelines are enacted in accordance with relevant laws such as the Company Law and the Securities Law, applicable administrative regulations and rules, as well as the Rules Governing Listing of Stocks on Shenzhen Stock Exchange and the Special Provisions of Shenzhen Stock Exchange on Companies Listed on SME Board, for the purpose of earnestly protecting the legitimate rights and interests of investors, especially that of minority investors, improving standardized operations of listed companies, and promoting the healthy and steady development of the Small and Medium-sized Enterprise Board (hereinafter referred to as the SME Board).
Article 2 These Guidelines apply to the companies listed on the SME Board (hereinafter referred to as the listed companies) and their controlling shareholders and de facto controllers, the directors, supervisors and senior officers of listed companies, and the sponsors and sponsor representatives.
Article 3 Investors have lawful rights to access information, to participate in major decision making, to obtain profits from investment and to select managers. Listed companies and their controlling shareholders, de facto controllers, directors, supervisors and senior officers shall take necessary measures to ensure investors’ exercise of the foregoing rights.
Article 4 The controlling shareholder of a listed company shall exercise its rights as a capital contributor in accordance with law. The controlling shareholder and de facto controller shall not infringe the right held by the listed company as a legal person to its independent assets and shall not take advantage of their controlling status to impair the legitimate rights and interests of the listed company and minority investors.
The directors, supervisors and senior officers of a listed company shall faithfully perform their duties, safeguard the interests of the listed company and all investors and assume fiduciary duties to investors.
Article 5 In case that the controlling shareholder, de facto controller, any director, supervisor and senior officer of a listed company impairs the interests of the company and minority investors, the listed company shall make timely disclosure, be active in claiming compensation and, where necessary, institute legal proceedings with a people's court. If investors institute legal proceedings in accordance with law, the listed company shall render active cooperation and relevant conveniences.
Chapter II Emphasizing Sustained Development
and Protecting Investors’ Right to Obtain Dividends
Article 6 Listed companies shall highlight their principal businesses, enhance their capability in self-innovation, respond proactively to market changes, improve their core competitiveness and promote sustainable development.
Article 7 Listed companies shall improve their scientific decision-making and management capability. The decisions made shall be scientific, democratic and prudent and in strict accordance with laws and regulations and the articles of association. Feasibility study of the use of funds raised and of investment projects shall be strengthened, and earnest efforts be made to enhance the efficiency and profitability.
Article 8 Risk alert and treatment mechanism shall be set up by listed companies. They shall enhance their sense of risks, effectively avoid and dispel the risks that exist in the business, market, technology, financial affairs and investment, maintain the operation order and ensure that property of the company is safe and sound.
Article 9 Listed companies shall pay due regards to ensuring reasonable investment return to investors, especially minority investors, and formulate policies for continuous and steady profit distribution.
Article 10 The profits distributed by a listed company shall not exceed its total accumulated profits distributable and such distribution shall not impair the company’s capability for sustainable operations.
Article 11 Shenzhen Stock Exchange (hereinafter referred to as the Exchange) does not advocate high cash dividend payout by listed companies that have posted negative cash flows from their operating activities for two consecutive years.
Chapter III Strengthening Information Disclosure
and Protecting Investors’ Right to Know
Article 12 Listed companies and relevant persons with disclosure obligation shall, in strict accordance with laws, administrative regulations and rules, as well as the rules of the Exchange, truthfully, accurately, completely and timely disclose the information that may significantly impact the price of stocks and derivatives or the decision-making of investors, and such information may not contain falsehoods, misleading statements or material omissions. The person with disclosure obligation shall, based on the principle of good faith, voluntarily disclose other information that is not required by laws, administrative regulations and rules, as well as the rules of the Exchange.
Listed companies shall ensure that investors have equal access to the information disclosed and shall not make selective disclosure. In case of inconsistency in the information disclosed, the person with disclosure obligation shall state the reason therefor and make disclosure in a timely manner. In severe cases, the person with disclosure obligation shall make a public apology to investors.
Article 13 When making voluntary disclosure of forward-looking financial information, listed companies shall follow the internal audit procedures, issue risk warning to investors stating the assumption basis for such forward-looking information and any uncertainty involved and, in accordance with actual conditions and in a timely manner, modify the information previously disclosed.
Article 14 If the controlling shareholder or de facto controller is in any of the following circumstances and such circumstance leads to unusual movement in the prices of stocks and derivatives of the listed company or gives rise to market rumors, or when required by the Exchange, such controlling shareholder or de facto controller shall, through the listed company, report to the Exchange and make relevant disclosure in a timely manner:
(1) significant asset restructuring of the listed company is being conducted;
(2) making such transactions with the listed company as provision of large-sum financial assistance, conclusion of major contracts or transfer of key technology;
(3) in process of negotiations with specific investors for alteration or transfer of the control power of the listed company;
(4) business conditions deteriorate; or
(5) other circumstances that may significantly impact the price of stocks and derivatives of the listed company.
Article 15 The former shareholders of non-tradable shares and the de facto controllers of listed companies (hereinafter referred to as the promisor) shall fulfill all the commitments they make to investors and the regulatory authority in their plans for non-tradable share reform. When preconditions for fulfilling such commitments are about to be met or already met, the promisor shall fulfill such commitments and disclose relevant information in a timely manner. Listed companies shall disclose in their periodic reports the particulars of fulfillment of such commitments.
The promisor shall keep an eye on the changes in such preconditions like bonus share distribution, transfer of surplus capital, increase of capital, pro rata issue or dividend payout, that lead to changes in shareholding or shareholder interests. When such circumstances arise, relevant data shall be adjusted accordingly and disclosure be made in a timely manner.
The promisor shall pay continuous regards to its ability to fulfil its commitments. In case any deterioration in operations or financial position leads to or may lead to its inability for such fulfillment, the promisor shall notify the listed company and make disclosure in a timely manner.
Article 16 Non-tradable shares holders shall strictly fulfill the commitments they have made and perform disclosure obligations upon selling their stake. Pursuant to the non-tradable share reform, listed companies shall disclose in their periodic reports the shareholdings conditions and any changes thereof of former non-tradable shares holders.
Article 17 A listed company that plans to appoint directors, supervisors or senior officers or to renew appointments of such persons shall disclose the relationship between such persons, the relationship between any of them and the shareholder who holds five percent or more of shares in the company, the relationship between any of them and the de facto controller, and particulars of any appointments of such persons as directors, supervisors or senior officers in other institutions in the most recent five years.
Article 18 Listed companies shall strengthen relations with minority investors. Effective channels should be established to allow face-to-face communication on a regular basis. An explanation meeting on the yearly report shall be held within ten days from disclosure thereof, where the chairman of the board of directors (or president), chief financial officer, independent directors (at least one), secretary to the board of directors and sponsor representatives shall present themselves, at which the following shall be addressed:
(1) the conditions and prospects of the industry to which the company belongs and the risks involved;
(2) the company’s development strategy, conditions of business operations, use of the funds raised, and the development of new products and new technology;
(3) the company’s financial position, operating results and their movement trends;
(4) the difficulties, impediments or contingent losses faced by the company with respect to its business, marketing, technology, financial affairs, use of the funds raised and its development prospects; and
(5) other issues of concern to investors.
A listed company shall announce the annual report explanation meeting at least two trading days in advance. The announcement shall include the date and period (no less than two hours) of the meeting, convening method (on-site/online), venue or website, and the list of attendees of the company.
Article 19 A listed company seeking issues of new shares or convertible bonds shall, within five working days from issuance of the notice of convening the shareholders’ general meeting, hold a meeting explaining in detail the necessity of the proposed financing, the specific issuance plan, feasibility of the use of the funds to be raised, and the use of the funds raised in its previous issuance.
Article 20 Listed companies shall firmly protect minority investors’ right to access its relevant data. The Exchange advocates that listed companies establish separate websites or web pages to launch special columns for investor relation management.
Chapter IV Improving Corporate Governance
and Protecting Investors’ Right to Participate in Decision-Making
Article 21 Listed companies shall optimize the systems relating to shareholders’ meeting, board meeting and supervisor meeting in accordance with law so as to create a corporate governance structure that features well-defined rights and responsibilities, effective checks and balances, scientific decision-making, risk prevention and coordinated operations between the power organ, decision-making organ, supervision organ and the management.
Article 22 Listed companies shall give equal treatment to all the shareholders at the shareholders’ meeting and shall not, by means of illegal transfer of interest or exchange of interest, influence some investors’ decision-making, manipulate the voting results and impair the legitimate rights and interests of other investors.
Article 23 Listed companies and their controlling shareholders shall fully protect minority shareholders’ right to propose the convening of shareholders’ meetings. Upon receipt of a written proposal, the board of directors shall decide on this issue in accordance with laws, regulations, and the company’s articles of association and shall not, without justifiable cause, delay or obstruct the convening of such meeting.
Article 24 The shareholder of a listed company may publicly solicit from other shareholders the rights lawfully held by shareholders, such as the right to convene a shareholders’ meeting, the right to raise proposals, the right to nominate and the right to vote. The Exchange advocates that listed companies formulate in their articles of association the implementation rules on solicitation of shareholders’ rights. No sales or disguised sales of shareholders’ rights are allowed in this process.
Article 25 Listed companies shall improve their voting system of shareholders’ meetings. When considering any of the following matters, a listed company shall provide conveniences to minority investors for their participation in the shareholders’ meeting with the help of the Exchange’s trading system or Internet voting system:
(1) in a major asset restructuring of the listed company, the total price of the assets acquired represents a premium of or over 20 percent of the audited net book value of such assets;
(2) the major assets acquired or sold or the amount of guaranty provided by the listed company within one year exceeds 30 percent of its latest audited total assets;
(3) any shareholder repays its debts to the company with its equity interest in the company or with physical assets;
(4) a key affiliate of the listed company floats shares overseas; or
(5) relevant issues that have significant impact on the rights and interests of minority investors.
Listed companies shall by all means publicize and explain relevant proposals to minority investors and, within the three trading days prior to the shareholders’ meeting, publish announcement of such meeting.
Article 26 Minority investors are entitled to raise suggestions or inquiries relating to the operations and relevant proposals of a listed company. These inquires shall be addressed in a faithful and accurate manner by the directors, supervisors or senior officers.
Article 27 A listed company shall provide in its articles of association that the cumulative voting system shall be adopted when voting on the election of two or more directors or supervisors. The Exchange advocates competitive election of directors or supervisors and that a listed company provide in its articles of association that the shareholders who individually or jointly hold one percent or more of the total shares of the company may nominate candidates for directorship or supervisorship prior to the shareholders’ meeting, and also that independent directors appointed account for half or more of the total number of directors of the company.
Article 28 The Exchange advocates that a director, executive vice president or chief financial officer of a listed company act as the secretary to the board of directors of the company.
Article 29 Listed companies shall strengthen the fiduciary duties of directors, establish an accountability system for directors and the board of directors, and pursue the liability of directors and the board of directors who neglect their duties. Listed companies shall optimize the independent director system, clearly define the qualifications as well as the rights and obligations of independent directors, urge independent directors to perform their duties in good faith and with due diligence, and intensify independent directors’ supervision over the controlling shareholders, directors and senior officers.
Article 30 Independent directors shall protect the interests of the listed company and all the investors in an earnest manner, keep informed of the production and operations of the listed company, and give full play to their role in the investor relation management. The Exchange advocates that independent directors publicize their contact details or E-mails to address investors’ inquiries and complaints, take initiatives to investigate any misconduct that impairs the legitimate rights and interests of the listed company and minority investors, and feed back the result of any such investigation in a timely manner.