The Protection Of Dormant Shareholders’Stork Right Under The Share System

As investors’behavior of investing in different companies in others’names are commonly seen in company law practices, dormant investors are generally called dormant shareholders by theorists and practitioners. Dormant shareholders invest in companies to hold stock rights, which is the essential distinction between dormant shareholders and other investors. Seen from company contract theory, the company’s equity actually results from the contract behavior of the company’s equity investors. Stock rights are the consideration payment that the company gets from shareholders’ investments as stipulated in the equity investment contract. As actual investors in the company stock, dormant shareholders enjoy a financial foundation for acquiring stock rights. In consideration of investment, dormant shareholders are entitled to exercise the shareholder right. When a dormant shareholder has yet to be a significantshareholder, or the company refuses to verify its shareholder qualifications, the dormant shareholder could only exercise the shareholder rights in view of the dummy shareholder’s authorization. In such cases, the dormant shareholder could not realize the investment purpose of participating in stock right management or disposition. Shareholder qualifications of dormant shareholders have yet to be verified in the Company Law of China, and protection of dormant shareholders’interests has been constantly disregarded by the academic circles.At present, two mechanisms aim at protecting dormant shareholders’stock rights: the stock right trust system and the stock right share system. In countries adopting Anglo-American legal systems, legal relations between dormant and significant shareholders are dealt with on the basis of the trust law, and expected returns ofdormant shareholders who invest in companies are ensured in the pattern of stockright trust. The introduction of such a system originates from similarities between the legal construction of trust relationship and the system design of separation of the company’s ownership and control. The stock right trust system was established earlier than the dormant shareholder phenomena. Though having been playing an effective role in adjusting the legal relations of dormant shareholders and verifying the legal status of dormant shareholders, the trust system requires dormant shareholders to not interfere with significant shareholders’management practice at discretion, namely failing to meet the real purpose of dormant shareholders’ participation in company operation and management. Under the stock right share system, dormant shareholders could not only actually participate in company operation and management, but also enjoy their right to vote for stock right management and disposition through co-owners’resolution. Comparing with the stock right trust system, the stock right share system could help realize the final purpose of dormant shareholders’investment in the company, and serve as an effective approach to realizing the shareholding for shareholders, so it has become the optimum choice for dormant shareholders to protect their stock rights. However, when the stock right share system is concretely applied to protect dormant shareholders’stock, barriers to dormant shareholders exercising their stock right still exist, so this paper aims to finally settle how to perfect the system of protecting dormant shareholders’right to sharing stocks.