A Legal Study Of The Silent Partner

A great amount of issues appear during the trails that always result in procedural obstacles. For example, some shareholders singed on the Articles of Association without business registration; some apply for the business registration but no signatures on the Articles of Association and the partner list; some shareholders get neither the signature of the business registration, but only a Certificate of Incorporation (bank draft or invoice); some recorded or listed shareholders have never been aware of their rights and obligations; etc. The alleged facts all reflect an existing investment in real business world. Thus"Silent Partners"are those who have not been registered as a shareholder but actually practice as a contributor.Questions like how to judge whether the silent partner is valid or not, with what kind of criteria of assessment, how to deal with disputes arose out of silent investment, which is the most rational method to clearly understand the investment relationship are still unresolved.This essay is trying to analyze the composition and types of dormant shareholder at the beginning, and follows by discussion of authorization procedure of the silent partner to figure out disputes of silent contribution. In the last part of the essay, I will take account into reference of share entrustment project of when staffs hold the shares, and concluded in an investment relationship rebuild by share entrustment.This essay composed of four parts:Part One: the definition and types of silent shareholders. First paragraph will come up with the definition of dormant partners. The definition of undisclosed contribution is that one party initiates a transaction of contribution to the others and incorporate as a limited liability company by verbal or documentary agreement, but the name of the contributor will not be listed on the articles of association and shareholder list. These contributors are called as dormant shareholders. It will also cover the five characteristics of dormant partners. Secondly, it will analyze the main origins of silent shareholder: to achieve validity by evading the legally binding provisions; short of name or wrong name provided during business registration procedure caused by negligence and other reasons; awareness error; with purpose of cheating by stealing other's economic power, reputation, and credit. Thirdly, the types of dormant partners are as follows: entire silent contribution and imperfect silent contribution; agreed silent contribution and silent investment without agreement; silent contribution evading the legally binding provisions and silent contribution not concerning evasion of legal sanction.Part Two: qualification of silent shareholders. At first, it will introduce some theories of dormant shareholder's qualification: theories of affirmation, denial, and difference. Second, assess the qualification of shareholders under different situations: from the angle of inner relationships and outside relationships; when deal with inner relationships, account for the willingness of the parties based on the principles of equity and free will, prevent the governmental interference unless judicial department is necessarily in demand for a final arbitration; when settle the latter relationship, it should based on the principles of publicity and format to protect the third party acting in good faith, thus it can be confirmed that all the registered contents are according to the fact and lawfully credited except for false statement.Part Three: Dispute resolution. In the real business world, there is an extensive existence of dormant contribution. Unfortunately, the lack of legislative resolution of investment issues lead to a rise of dormant investment dispute, such as dispute of contribution defect and option transfer. In the case of contribution defect relating to in-house issues, it must take into account for the fact that whether the company realize the silent contribution. When concerning the defect of creditor, it should regard to the principles of publicity and format. There are two types of share transaction disputes in practice: first is when the nominal contributor carry out the option transfer to the third party without consent of the silent partner; second is when the dormant partner signed up agreement of share transfer but the nominal investor refuse to take its liability and also ask for shareholder rights. The key issue of the former one is to know clearly about whether it is to protect the real rights holder or the third party of good faith. Again, the latter is judged on real facts.Part four: To restructure the stock ownership of dormant partners. First, I will restructure the relationship among the dormant partners by using trust law theory. The agent theory and the lending theory are non self-sufficient, I have to use the trust theory to analyses the fundamental legal doctrine of the stock ownership trust theory and its characteristics in order to clarify that the trust theory is necessary to be used when we focus on the activity of the dormant partners investment. Second, I will restructure the relationship among the dormant partners by using an example of the employee shareholding association. The legal qualification of the employee shareholding association is facing some problems in China, but there will be some merits to deal with those problems by using the trust theory as mentioned above. Thirdly, I will focus on the difference methods between the public company and private company through the trust theory. I will issue business plan about the employee shareholding system.