| Hidden Investment is a quite common way to invest a limited liability company during the establishment and development of the company. The actual investor has an agreement with the nominal investor that he/she/it will contribute capital to the company in name of the nominal investor, which makes the nominal investor into the nominal shareholder, while the actual investor enjoys rights and interests of the investment. Lots of disputes appear which are hard to solve, as the the legal status of the actual investor is not clear.Considered that legal regulations about hidden investment are still insufficient that leads to the difference or the reverse of the judicial precedents, it is essential to study the legal status of the actual investor, which may start from making clear of the features of the actual investor, as follows. The actual investor contributes capital to the company. Instead of the actual investor, the name of the nominal investor will show up on the articles of association, the share register or any other public documents. In the agreement between the actual investor and nominal investor, the actual investor contributes capital to the company and enjoys the equity returns, while the nominal investor turns out to be the shareholder of the company and may get paid according to the agreement.The actual investor invests the company in a hidden way for various factors, which could be mainly divided into two type, the circumvention law type and noncircumvention law type of hidden investment. Some of the actual investors are civilservants, who are not allowed to engaged in profit-making business operations. To avoid the prohibition, these civil servants invest the company in name of the other people to make the investment ostensibly legal. Besides, the set-up of one-man company with limited liability are limited, also, the number of shareholders is restricted by law, to get rid of these limits and prohibitions, the actual investors choose to invest in hidden way. In addition, the actual investor may invest in a hidden way to for the sake of individual privacy, or for a better image, or to benefit from preferential investment credit. The hidden investments based on invention to circumventing law are definitely illegal, including both the investment behaviors and the agreements between actual investors and nominal investors, under which circumstance, the actual investors would never become the shareholders of the company. On the opposition, the non-circumvention law type of hidden investment could be effective as an expression of autonomy of private law.The contractual relationship between the actual investor and the nominal shareholder is the basis of hidden investment. This relationship is often compared with trust and agency, for the similarity of their characteristics. In consideration of both the differences in disposition authority of the trustee and the nominal shareholder and the differences between trust relationship and the contractual relationship between the actual investor and the nominal shareholder, equity investment trust should be discussed separately, which may not be considered as hidden investment. As in common law countries, the development of trust system is quite mature, it may give a better protection for the interest of the actual investor.After the conclusion of the agreement between the actual investor and the nominal shareholder, the nominal shareholder shall fulfill certain contractual obligations in a timely and effective manner. Any unauthorized behavior beyond the contract will cause the breach of the agreement, for which the nominal shareholder shall bear the liability. However, the nominal shareholder has no obligation to conduct any behavior in violation of the provisions of laws and regulations. So as the the instructions of the actual investor. Being a nominal shareholder shall bear the duty of loyalty and faith to the actual investor. In order to supervise the behavior of the nominal shareholders, the actual investors shall have the right to consult the company’s information and listen to the report of the company through the nominal shareholder. The most important rightis that the actual investor has the right to benefit from the stock right.Whether the actual investor can obtain the shareholder qualification is the core issue to determine its legal status. In regard to this problem, our country mainly has three kinds of theories: the substance theory, the form theory and the distinction theory. As the substance theory believes that the actual investor has fulfilled the obligation of capital contribution so that the actual investor shall be the shareholder of the company, while the form theory believes the nominal investor is the shareholder of the company according to the publicity doctrine and appearance doctrine, however, distinction theory believes that it should be distinguished into two condition, that is to say, the substance theory should be applied in resolving the internal conflicts, while the form theory should be applied in resolving the external conflicts. Each of these three theories has advantages and disadvantages. When we are talking about the shareholder qualification, four principles shall be taking into account, that is, publicity and appearance doctrine, the stability of the company’s internal relations, the balance of the interests of the parties and the prohibition of illegal acts. According to these principles, it is the nominal shareholder who shall be deemed as the shareholder of the company other than the actual investor.If the actual investor wants to exercise the rights of shareholders directly on his/her/its own, generally speaking, there may be two approaches as filing a complaint to the court or a request to the company. The actual investor brought a lawsuit to the court, claiming that the qualification of the company’s shareholder should belong to him/her/it. For this kind of dispute, the court may judge according to the actual investment, publicity registration, other shareholders’ agreements and so on, if more than half of the shareholders of the company had already known about the hidden investment, the company should allow the actual investor to be the shareholder of the company, as long as the actual investor does not violate the mandatory provisions of the law. In addition, the actual investor shall terminate the agreement of the hidden investment, after which, the actual investor may request to the company to be a shareholder.Based on the special relationship between the actual investor and the nominal shareholder, the actual investor and the nominal shareholder should bear some legalresponsibilities under certain conditions. When there is a flaw in the contribution of a shareholder, the shareholder is obliged to fulfill the contribution correctly. The nominal shareholder is the shareholder recorded on the articles of association. If the contribution of the actual investor flaws, the nominal shareholder shall contribute, after which, the nominal shareholder has the right to demand compensation from the actual investor in taking the responsibility for the creditor of the company, and also in the circumstance of applying the system of disregarding corporate entity. |
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