Legal Issues In Relation To The Recognition Of Shareholder Qualification Of A Limited Liability Company

The shareholder qualification is the basis for investors to acquire and exercise the rights and assume the obligations of shareholders. Hence the recognition of shareholder qualification is of utmost significance to interested persons such as the company, shareholder and creditor. As currently the incorporation and running of limited liability companies in China is often irregular, the issue of the recognition of shareholder qualification often directly or indirectly arises in various categories of company lawsuits, and even becomes the foremost issue to tackle in many interrelated lawsuits. Without openly defining the standard for recognition of shareholder qualification, the Company Law only clarifies the presumptive function of the shareholder register and the antagonism function of authority registration, but contains no clear provisions regarding the validity of other elements. This constitutes the fundamental cause for the difficulties in the recognition of shareholder qualification. As the current company legal system contains no definite provisions regarding the recognition of shareholder qualification, this has become a controversial matter in the legal profession. In practice, the complexity of shareholder disputes makes it even more difficult for judges to adjudicate, with local courts varying tremendously in the way they resolve the issue of recognition of shareholder qualification. In other words, the research on the recognition of shareholder qualification has practical significance.This article is composed of four parts. The first part sets out the basic theory regarding the recognition of shareholder qualification, and elucidates the concepts of shareholder and shareholder qualification with a primary focus regarding the acquisition of shareholder qualification.The second part discusses the principles and basis relating to the recognition of shareholder qualification, with a primary focus on the various basis for recognizing shareholder qualification. Signing the articles of association reveals the true intention of the signatory to become a shareholder of the company, and this constitutes the primary evidence to determine initial shareholders of the company. The contribution of capital is the most important and fundamental way to acquire the shareholder qualification, and constitutes an important basis for the recognition of shareholder qualification. The shareholder register is the apparent basis for the recognition of shareholder qualification and has presumptive force by law. The shareholders recorded in the shareholder register may assert their rights as shareholders without adducing any further evidence. The capital contribution certificate can serve to prove the fact of capital contribution and constitutes the initial evidence for the recognition of shareholder qualification. Authority registration has prior binding force on others in terms of the company's external legal relationships. Exercising the rights of shareholder in practice can be an important source of secondary evidence.The third part discusses the specific schools of thought in relation to the recognition of shareholder qualification by firstly introducing the various viewpoints in relation to this topic, and further engages in a major analysis of the relevant schools of thought. We should look into both the external and internal legal relationships of the company and engage in a practical analysis of the specifics of the parties in dispute and select the corresponding applicable legal principles and recognition elements. With respect to the external legal relationships of the company, the formalistic evidence, especially authority registration, should enjoy prior consideration. With respect to the internal legal relationships of the company, the substantial evidence should enjoy prior consideration. In the event there is a conflict of substantial evidences, the mutual agreement between the shareholders is determinative.Taking into consideration judicial practice in action, the fourth part further discusses the issue of recognition of shareholder qualification in specific circumstances, such as the anonymous shareholder, the shareholder with capital contribution defect, the shareholder using a fake name and the transfer of equity.