Research On The Legal Issue Of Dormant Shareholders

The issue of a company's dormant shareholders is a special economic phenomenon. Recent years have witnessed an increasing number of the legal disputes caused by the dormant shareholders, which consequently resulted in a yearly increase in the cases on court. The new Company Law doesn't specify the legal status of dormant shareholders, though it recognizes their existence. The questions concerning them are currently limited to academic discussions and relevant provisions of foreign law references. In real economic life, the problem of dormant shareholders needs tobe legally regulated.The content of this paper is divided into four chapters.Chapter one: Overview of dormant shareholders. First, it elaborated the definition and the causes of silent investment. The so-called dormant investments, is one investor actually subscribed, subscription funded without his name in the company's Articles of Association, Register of shareholders or other business registration materials when other's name recorded in these materials. Causes of dormant investment are manifold. Mainly the following categories: First, to circumvent the prohibition law in order to seek the legalization of acts arising from the surface of dormant investment. Secondly, for seeking maximum benefits and enjoying the state preferential policies. Third, for the following reasons: Avoiding exposure to the real identity of the investor, personal privacy and other considerations. Fourth, for the reason: the compensation for employees of restructuring of state-owned, collective enterprises. Fifth, the defects related to business registration in the process. Second, it summarizes the implicit definition of shareholder and features. Dormant shareholders, also known as anonymous shareholders, are the actual investors subscribing for shares with other's name. Dormant shareholders have the following characteristics: the separation of form and substance about subject; limited accountability; risks of benefits and consistency; illegal rights and obligations of qualitative; limited forms of funding. In addition, this article summarizes the different types of silent shareholders: full dormant shareholders and the shareholders which are not completely hidden; dormant shareholders with agreement and dormant shareholders without agreement; shareholders for circumventing the law and dormant shareholders without this purpose; original dormant shareholders and the following dormant shareholders.Chapter two: The confirmation of dormant shareholders. The qualification of the dormant shareholders has important legal significance. It's the precondition of the rights and obligations. There're no specifications about confirming eligible shareholders for silent shareholders in China's existing laws. Confirmation of dormant shareholders should follow certain principles and standards. It should follow the following several principles to confirm the eligibility of the shareholders: Maintaining the stability of the company; Protecting and encouraging investment; Balance of interests; looking doctrine; Preventing circumventing the law.The recognition of dormant shareholders needs to be integrated from different standard of measurement: First, considerate these proof: the articles of incorporation, business registration and the register of shareholder. Second, these are the foundations for judging the qualification of silent shareholders: actual contribution or not, sign the investment certificates or not; exercise the rights of shareholders or not.The second chapter also lists the following specific situations: Some silent shareholders eligible shareholders can be confirmed when others not. That's because they lack the substantial elements and form elements.Chapter three: Dormant shareholder's rights, obligations and liabilities. Dormant shareholder's rights are based on the investment agreement with his significant shareholders. Rights of silent shareholders are consistent with the significant shareholders'and other shareholders'.When they have actual exercise of the rights of shareholders, they have the rights to ask the company to confirm the identity; they are entitled to capital gains; they have the rights to exercise of specific rights of the shareholders by Significant shareholders; they have the rights to o withdraw from the company. Of course these situations require specific analysis.Obligations to dormant shareholders are mainly funded obligations and fiduciary obligations. Contribution obligation is the most basic obligation of dormant shareholders. In the past, fiduciary obligation is mainly for the company's actual control and management. Now it has slowly expanded to ordinary shareholders on the company's general requirement. Dormant shareholders, although not full sense of the shareholders, influent the company by significant shareholders'operation or by himself. It follows that dormant shareholders should not abuse the right to damage the company and other shareholders. Liability to dormant shareholders, includes assuming the possibility of debt and the adverse consequences of violating the Articles of Association. Based on the relationship among dormant shareholders,significant shareholders,the company, or the third one outside the company. Silent shareholders may have the following liability: liability within the company when the shareholder disputes, liability when the company failed to establish, liability when bankruptcy or closure.Chapter four: China's Legislation on dormant shareholders. "Company Law" does not determine the legal system of dormant shareholder. Courts have inconsistent answers and comments about silent shareholders. There are legal risks for dormant shareholder. They make the interests of dormant shareholders under serious threat and occur for a variety of disputes buried seeds. Therefore, market players should be careful selection of silent investment. However, dormant shareholders from the market, is a manifestation of market demand. The form of dormant investment will help improving people's investment enthusiasm, absorbing idle funds, promoting social and economic .Dormant shareholder has his Pros and cons. Given the existence of advantages and disadvantages shareholders, we should establish the relevant legal system in"Company Law", confirm the qualification of shareholder ownership rights, identify dormant shareholder condition that public profit safeguarded, establish the rule for dormant voluntary and significant free within the existing legal framework. These rules minimize the dispute and provide legal bases for judgment.