Research Into Legal Issues Concerning Shareholding Entrustment Of Limited Liability Companies

As a new investment mode in the socialist market-oriented economy,shareholding entrustment can not only help investors effectively avoid limitations of laws and regulations(such as limitation on the number and quantity of shareholders in a limited liability company),but also allow them to keep the company in control and protect individual privacy.Therefore,shareholding entrustment has won favor from many investors.Meanwhile,shareholding entrustment is of vital significance to optimization of resource allocation and activation of investment market.Since shareholding entrustment is a new-type product of the capital market,its relevant legal systems have not yet been complete.As a result,all kinds of shareholding entrustment disputes facing judiciary authorities have been popping up annually.Currently,there are two laws in China,which are directly related to shareholding entrustment—one is Company Law Judicial Interpretation III and Regulations on Foreign-invested Enterprise Disputes(I).Other relevant laws include invalid situations of the contract in Contract Law and the bona fide acquisition system in Property Law.Though these laws provide basis for legal issues concerning the court's exercise of shareholding entrustment,they just regulate on ways to identify invalidity of shareholding entrustment agreements,how to protect investment benefits of the actual capital contributor,how to define the legal position of significant shareholders,significant shareholders' arbitrary disposal of their share rights,compensation request of the creditor from significant shareholders,and significant shareholders' recovery right from the actual capital contributor.Apart from the above issues,shareholding entrustment of limited liability companies is also widely investigated in terms of obscure legal attribute of shareholding entrustment,obscure legal consequences of invalid shareholding entrustment,incompleteness of current laws and lack of valid guarantee for legal rights and regulations,etc.The obscure legal attribute of shareholding entrustment is reflected as not only lack of legislation,but also lack of unity between theoretical dispute and judicial trial standards.Incompleteness of the current laws is demonstrated as lack of legislation unity and conflict of different laws.Damage of creditor's rights and interests include damage of rights and interests of the company creditor and the dominant shareholder's creditor.Arising of these problems has not only dampened investors' enthusiasm,destroyed safety of market transactions,and accelerated financing difficulty facing private enterprises,but also caused barriers to the court's trial in judicial practice.Therefore,in order to purify the environment of the capital market,standardize behaviors of relevant parties during the investment process,and alleviate the work pressure of the people's court in handling shareholding entrustment cases,these legal issues concerning shareholding entrustment require immediate solution.Apart from taking heed of precious suggestions of various scholars,the court should also combine its practical experience over the past few years to put forward targeted suggestions so as to gradually resolve legal issues facing shareholding entrustment of limited liability companies.However,these issues should be coped with through identification of the legal attribute of shareholding entrustment,clarification of legal consequences of invalid shareholding entrustment,unification of legalization and elimination of legal contradictions,improvement of guarantee for rights and interests of the company and the shareholder's creditor,etc.