Dormant investment in China? Think twice

By John Jiang, Boss & Young
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Dormant or anonymous-nominee shareholding investment is a quite popular investment vehicle in mainland China. In this special arrangement, the actual investor (anonymous shareholder) entrusts the nominee shareholder to contribute to the capital of a company and the nominee shareholder is recorded as the shareholder in the articles of association and the register of the shareholders.

John Jiang
Partner
Boss & Young

As a business lawyer, the author has witnessed many disputes in recent years arising out of this kind of arrangement, together with its popularity. Foreign and local investors choose to adopt dormant investment for such legitimate purposes as privacy, flexibility or convenience. However, many investors have concluded this arrangement just to avoid restrictive or prohibitive provisions of laws and regulations.

Two interpretations

Some investors feel more confident in adopting this investment method after the Supreme Court of China (SPC) promulgated two judicial interpretations, i.e., the Regulations on Issues in Adjudicating Cases Involving Foreign Invested Enterprise Disputes (I) of 2010, and the Regulation on Several Issues Concerning the Application of the Company Law (III) of 2011. In both interpretations, formal recognition is granted to dormant investment arrangements, and preconditions to be satisfied are prescribed if the actual contributors request courts to recognize their shareholder status in invested companies.

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John Jiang is a partner at Boss & Young in Shanghai

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Boss & Young

12th-15th Floor, 100 Bund Square,

100 South Zhongshan Road,

Huangpu District, Shanghai
www.boss-young.com

Contact details:

Tel: +8621 2316 9090

Fax: +8621 2316 9000

Email: jiangsheng@boss-young.com

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