Key points in litigation over nominee shareholding

By Xian Yifan, East & Concord Partners
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After completion of investment and M&A, a certain shareholder may wish another shareholder or a third party to hold equity on his or her behalf. In such a case, the actual shareholder becomes a dormant shareholder, and the other shareholder or the third party becomes a nominal shareholder. Where a dispute arises between the dormant shareholder and nominal shareholder over equity, there will be a series of lawsuits over equity confirmation, registration of dormant shareholders, validity of the company’s resolution, the company’s dissolution, and objection to execution, etc. In recent years, lawsuits caused by nominee shareholding have become a popular area of commercial litigation and have brought about some new judicial viewpoints.


Article 24.3 of the Provisions of the Supreme People’s Court on Several Issues Concerning the Application of the Company Law (III) states that to be registered as a shareholder, a dormant shareholder should obtain the consent of half of other shareholders. “Other shareholders” refers to shareholders other than the nominal shareholder. In practice, the main point of the dispute lies in whether the “consent” in article 24.3 may be inferred from other shareholders’ awareness of the existence of a dormant shareholder, and the dormant shareholder’s exercising his or her rights.

Xian Yifan, East & Concord Partners
Xian Yifan
East & Concord Partners

In Beijing Huaran Hengji Technology v Beijing Kexin Shendu Technology et al (2019), the civil judgment held that other shareholders did not agree to the plaintiff’s registration as a shareholder; thus, even if other shareholders knew the plaintiff was an actual investor, and actually participated in the company’s operation, this did not mean that other shareholders agreed to the plaintiff’s request to be a registered shareholder.

In Yin Lin v Zhang Xiulan et al (2017), the civil ruling held that the company and its shareholders recognised the qualification of dormant shareholders after they paid the capital contribution to the company, and other shareholders knew the dormant shareholder had invested in the company in the name of the nominal shareholder, and had attended the shareholder’s meetings as a shareholder on numerous occasions while actually exercising his or her rights. Therefore, the ruling supported the request of the dormant shareholder to be registered as a shareholder.

Article 28 of the Minutes of the National Courts’ Civil and Commercial Trial Work Conference recognises the “implied consent” of other shareholders and provides that the “consent” should not be limited to the explicit consent of other shareholders at the shareholders’ meeting to the dormant shareholder’s registration request.


Another difficulty in the dormant shareholders’ confirmation of their shareholders’ status is whether foreign-invested enterprises (FIEs) are required to meet the premise of shareholder registration.

By article 14 of the Provisions of the Supreme People’s Court on Several Issues Concerning the Trial of Disputes over Foreign-invested Enterprises (I) (2020 revision), one condition for the registration of dormant shareholders is the approval by the examination and approval authority of FIEs. However, after the implementation of the Foreign Investment Law, if the equity change of an FIE doesn’t involve the implementation of special access management measures provided for by the state, only filing is required, not examination and approval.

It should be noted that, according to the law, if an FIE changes its equity, registering the change with the original registration authority is still required. If the articles of association are amended, the amendment should be submitted to the registration authority for filing.


Does a dormant shareholder have the right to directly bring a lawsuit over the effectiveness of the company’s resolutions, or to directly bring such a lawsuit in the name of the company’s shareholder before being registered as the company’s shareholder with the industrial and commercial administration? There are still different views on judicial practice.

In You Daiping v Kunming Xishan Land House Development Operation (Group) (2008), the judgment held that not only could the registered shareholders appeal for invalidation of the company’s resolutions, but the actual investors (dormant shareholders) could also enjoy the same rights and obligations as the registered shareholders, and their shareholders’ status should be protected according to the law, therefore they could file a lawsuit over the effectiveness of the company’s resolutions.

However, the civil judgment for Xu Dansheng et al v Haimen Equipment Installation Engineering Company (2014) held that the plaintiff, who had the right to bring a lawsuit for the revocation or invalidation of the resolutions of the shareholder’s meeting, and the board of directors of the company according to the law must be a shareholder of the company with voting rights. The dormant shareholder, who was not recorded in the company’s articles of association or industrial and commercial registrations, had no credibility regarding the disclosure of the registrations under the Company Law, and had no right to file a lawsuit for revoking or confirming invalidation of resolutions.


As the controller of the company, the dormant shareholder should bear joint and several liabilities for repayment of debts under the circumstance of the company’s inability to liquidate. Should the nominal shareholder bear any liability for this? In this regard, opinions are unified in judicial practice.

The civil judgment for Wang Fangling et al v Rainwoods Wealth Investment Management Group (2019) held that the shareholder information registered with the industrial and commercial administration by the company was effective against any bona fide third parties other than the company and shareholders, and the internal agreement between the nominal shareholder and dormant shareholder was not effective against any creditors other than the company.

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Therefore, the two were joint infringers and should undertake the liquidation liabilities jointly. Nominal shareholders were registered shareholders with credibility regarding the disclosure of the registration. A bona fide third party reasonably relied on the registration authority and took civil acts. Even if the actual ownership of equity was inconsistent with those registered in the authority, the reasonable reliance of a bona fide third party should be protected.

Due to the complexity of commercial considerations, the nominee shareholding is an option of the shareholding structure after M&A. However, nominal and dormant shareholders should fully evaluate and analyse potential disputes.

Xian Yifan is a partner at East & Concord Partners


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