On Qualification As Shareholders Of A Limited Liability Company In China

The identification of the qualification of the shareholders of a limited liability company is complex. The paper, hereby, listed six standards as practical investment, the shareholder roster, contribution certificate, the articles of the association, the record of the registration authority, together with the practical performance of the right with the shareholders. Generally, pursuant to the Company Law, when founding a company, the following requirements must be satisfied, i.e. sponsors' capital contribution, production of the articles by the contributors, as well as the registration at the correspondent authority. After the registration, the license is conferred, and the company is incorporated herein. The sponsors therefore become the shareholders and perform the right of the new company. The company should issue the capital contribution certificates to the shareholders and prepare a roster with the names of the company and its shareholders on it, which should be updated with the registration authority, in the cases that the articles of the association are modified and the changes in the people of the shareholders. The company usually runs smoothly when legally operated under the conditions mentioned above, while in reality, though provided by the company law, many companies ignore the articles of the law, and some irregular operations happen frequently, for example, no roster is prepared at all, the names written on the roster are not the genuine contributors, or the registrations are not updated in the event of the changes of the major items of the company. Hence, the contradictions arise, and the verification becomes rather difficult. We should abide by the rules of identifying the qualification through the facts of the disputes.For the above-mentioned six standards, genuine contributors may acquire the status of the shareholders if the company is legally incorporated, and the genuine contributors are licensed with the certificate of the contribution. However, not all the genuine contributors may acquire the status of the shareholders in the end. And the certificate is just a surface evidence for the contribution, which cannot be decisive in identifying the shareholders. The roster prevails in identification activity as the names recorded may presumably exercise the right of the shareholders with the somehow possibility that those who are not included in the roster may have the right as well. The articles of the incorporation just demonstrate the intentions of those who sign it and are functional for the disputes among the sponsors. The registration, having the competence of the evidence, plays an important part in handling the disputes arising between the bona fide third party and the company for its publicity. However, the practical performance of the right of the shareholders doesn't necessarily mean the acquisition of the status of the shareholders. On the contrary, it's the outcome of it, and is auxiliary in identifying the qualification of the shareholders.We should resort to some rules of civil law as well as commercial law, like the consistence of the right and obligation, own-governed intention of a party, and the protection for the interest of the third party. Besides, its unique rules of considering the interest of the varied parties, the maintenance of the company, and the forbidding in legal avoidance must be abided by. Generally, the record with the roster of the shareholders, the articles of the association, and that kept by the registration authority, independently works as the evidence which presumably means the right of the shareholders. The articles of the association apply when disputes arise among the sponsors; rosters prevail among shareholders, and the registration record rules between the bona fide third party and the company for its publicity. The newly enacted Company Law of the P.R.C in 2006, have identified the preference of the roster and its effect in presuming the right of the shareholders. Despite the presumed right that is discussed above, the substantive evidence may stand out when the opposite evidence exists, which includes, while not restricted to, signing the articles of the association, practical contribution to the incorporation, acquiring the certificate of the contributions, and practical performance of the right. Thus, to identify the qualification of the shareholders, the required form evidence should be preferred, with the substantive evidence as an exception. At the same time, different elements should be taken into consideration about disputes happening inside or outside the company. If the issues are just those inside the company, it's better to live up to the roster and the articles of the association signed by the contributors. While if the dispute is related to the third party with good faith, the registration record thereby applies.In practice, we also confront the problems like defective capital contribution and non-contribution phenomena. As for non-contribution, we should specify the different situations. For those who are incapable of contribution, they cannot acquire the qualification, and those who are reluctant to contribute may have the status of the shareholders only after the contribution is completed by them. Those who become the shareholders through inheritance and gift are legally approved. Nevertheless, special provisions of the articles must be observed if there are any, and the timing of the articles of the association must also be considered. For the defective contribution, including silent contribution, where the genuine contributors are not known, and the contribution that is done by assuming another's name, it is, in practice, identified, but only with a limited right. As to the silent contribution, the right of the shareholders goes to the ones who have their names on the roster, and only on specified occasions, will it go to the genuine contributors. On the occasion of the contribution with an assumed name, neither the one who assumes another's name nor the one whose name is assumed may have the qualification of the shareholder. And thereby, the former must be legally liable for its act of assuming another's name in contributing to the company.