Legal Research On The Qualification For Dormant Shareholders Of Limited Liability Companies

In recent years, with the in-depth development of China’s economic reform, China’s economic sphere is gradually improving the economic security measures. On the one hand, the area of investments becomes extremely active; on the other hand, the number of economic disputes is growing along with the increasing investments. The dormant investment dispute is one kind of economic disputes. Yet, the "Company Law" in China does not specify the relationship between the dormant shareholders and the dominant shareholder. The qualification for the dormant shareholders of limited liability companies has been a heated discussion topic in the field of civil and commercial matters. The qualification for the dormant shareholders is not only related to the dormant investors’qualifications and interests within the company, but also has great influence on the main interests of other shareholders and the other legal relations. Facing the increasing amount of dormant investments, the law cannot stand idly by and not be regulated, leading to possible distortion of economic development towards the right direction. On January 2011, the Supreme People’s Court issued "Provisions of the Supreme People’s Court about Several Issues Concerning the Application of the Company Law of the People’s Republic of China (Three) ", which made clear regulations concerning the relationships between the dormant investors and the nominal investors, the other shareholders, and the other external third parties. To some extent, this legal provision filled some legal gaps; however, because of the flexibility in commercial practices, it was difficult to for this "double standards" to be completely applicable. Therefore, the legal research concerning the qualification for dormant shareholders of limited liability companies is applicable both theoretically and practically.In this paper, through the discussions about the qualification standards for the dormant shareholders, the author establishes the legal status for the dormant shareholders. Also, the author puts forward some solutions and recommendations based on the analysis of the existing legal standards for the dormant shareholders of the limited liability companies. The author would wish to provide some opinions for future legislative and judicial settlements.The main content of this paper is divided into the following four parts:The first part is the overview for dormant shareholders. Through the general discussions on various topics concerning the dormant shareholders such as the source of the concept, definition, legal characteristics, and types, the author clearly analyzes the connotation and extension of the concept of the dormant shareholders. In the meantime, the author determines the scope of the paper and the main problem involved, in order to lay the foundation for the following discussion.The second part establishes the qualification principles and standards for the dormant shareholders of limited liability companies. Firstly, the paper generalizes various scholar reviews in China and abroad concerning the qualification for the dormant shareholders, including the affirmative, negative, and differentiation views. Moreover, from a practical perspective, the author emphasize the analysis on the evidence of the qualification for dormant shareholders in order to conclude the main principles of the qualification process for shareholders, including maintaining the transaction security and public interest, respect for freedom, promote speedy transactions, and the balance of interests to maintain a stable company. Lastly, the author gives the fundamental and formal analysis of the qualification standards for dormant shareholders.The third part discusses the judicial practice concerning the legal disputes of the qualification for dormant shareholders of limited liability companies. The author makes a brief introduction of the current status of the legal disputes on the qualification for dormant shareholders within China, which establishes the practical foundation for the fourth part of the paper concerning the perfection of the qualification for dormant shareholders.The fourth part concerns the perfection of the qualification for dormant shareholders of limited liability companies. Based on previous analysis of the paper, the author concludes the shortcomings within the current qualification system of dormant shareholders in China and proposes various measures to improve the existing system.