Research On Legal Status Of Limited Liability Corporation’s Dormant Investors

The key to dormant investment dispute is how to identify the legal status ofdormant investors. Theorists usually use formal features or substantial features ofshareholders to examine whether dormant investors can obtain shareholderstatus,which divided into three types of academic view,the substance,the forms,andthe compromise. Theoretical dispute stems from inadequate legislation. However，theCompany Law of P.R.C does not provide any specific regulation on the dormantinvestment,The Supreme People’s Court has drafted a consultative paper of judicialinterpretation concerning this issue in December2003, but it did not appear to bepromulgated in the form of judicial interpretation in the end. The third judicialinterpretation of the Company Law,which is promulgated by the Supreme People’scourt in2011to address some issues in relation to the dormant investment, establishedadjudication standards for such cases. But these rules are not reasonable or perfect. Inthe field of judicial practice, judges often reach different conclusions because of theadoption of different legal theory and standard. This will damage the legal andjudicial authority, and is not conducive to resolve disputes and regulate marketbehavior. Therefore, the paper has a study on the dormant investor of limitedliability corporation,analyse the legal status of dormant investor which includes thedefinition,the features, cause and basic types. Then evaluate the current theory and legislation in the dispute,and at last on the basis of specific circumstances,the paperreconstruct the legal status of the dormant investor from the general sense of theshareholders identified.In a word,the author expect that this paper will be useful todormant investment dispute resolution in the judicial practice in China.This paper divides into three parts as Introduction, Body, and the Conclusion.The Introduction part introduce the background of this paper.The Body section includes the following chapters:The first chapter is the basic problem of the introduction dormant investor. First,this chapter mainly introduces the basic theory on dormant investment,with theanalyzing on the history,concept,feature,and cause these four aspects. On this basisthis chapter discusses dormant investor of the limited liability company from theconcept and types.The second chapter focuses on discussing theoretical and legislative aspects ofthe standards of identified dormant investor′s legal status. First the author analysesthree kinds of prevailed viewpoints on the subject of how to identify that the dormantpartner is entitled to be a shareholder, such as the substance,the forms,andcompromise.The author do a comparative analysis of these three views.Secondly,compare to actual dominator，the author conclude that the provisions for the actualdominator of the Company Law can not be fully applied for the dormant investorregulation. Then the paper analyses the consultative paper of judicial interpretationdrafted by The Supreme People’s Court and the third judicial interpretation of theCompany Law on the terms of the legal status of dormant investors identification, andcomments on the attitude and tendency about this issue.The third chapter try to reconstruct the legal status of limited liability company′sdormant investor. First of all,the paper illustrates some basic concept about this,suchas investment, shares, equity, shareholders, and raises that the legal status of dormantinvestors identification should insist on three principles, respecting for the contractbetween shareholders, following the requirements of commercial appearance ofdoctrine and publicity doctrine, and respecting for the parties true minds. Finally, theauthor summarizes the rules of the legal status of dormant investors identification in four major areas: first, the interests distribution between dormant investor andsignificant shareholders; second,in the light of the company and other shareholders,the conditions for recognizing dormant investors to be shareholders;third, the dormantinvestor′s responsibility of the creditors of the company;finally, the effect of equityshare disposition.The last part is the conclusion, the author reiterates the view in the text thataccording to the dormant investor′s rights and obligations, insisting on distinctionbetween the legal relationship between the parties, rather than dwell on the formalfeatures or substantial features to identify the legal status of dormant investors oflimited liability company.