Supreme Court: Is it Valid to Agree in a Contract That Punitive Damages Cannot Be Adjusted?

 How to Deny Shareholder Status When Registered Under False Name

Authors: Wang Jingcheng, Li Bin, Zhang Derong, Zhao Baorong (Beijing Yunting Law Firm)

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False registration refers to the act of using a fictitious legal entity or impersonating someone else to register that entity or individual as a shareholder with the company registration authority, while the actual investor exercises the shareholder rights.

In practice, since in some regions the presence of shareholders is not required for company establishment, it is not uncommon for shareholder signatures in business registration materials to be signed by others on their behalf. This leads to many people being registered as company shareholders without their knowledge, so to speak, “trouble comes from the sky while sitting at home.” Filing a lawsuit to deny shareholder qualification is a common remedy for those whose names have been falsely registered. So, how do courts generally determine shareholder status in such cases?

Key Points of Judgment

The recognition of a false shareholder should be cautious. The person claiming to be falsely registered needs to bear the burden of proof to show that they were unaware of being registered as a company shareholder and did not intend to become a shareholder. If the registered person only proves that the “signature on the business registration files was signed by someone else or forged,” the court will generally consider the evidence insufficient to meet the standard of proof. Additionally, the duration of the registration as a shareholder, the relationship between the registered person and key company personnel, and other factors are also key elements that the court will examine.

Case Summary

1. Zhu Jing and Tian Hongsheng registered their marriage on November 8, 2006. Zhu Jing and Tian Hongsheng divorced on October 17, 2018.

2. On February 13, 2012, Rongyan Company was established, with the company’s articles of association stating: Tian Hongsheng contributed 50,000 yuan, and Zhu Jing contributed 50,000 yuan. The signature page of the Rongyan Company’s articles of association had signatures of “Tian Hongsheng” and “Zhu Jing.”

3. On March 10, 2016, Rongyan Company held a shareholders' meeting and passed a resolution to change the registered capital from 100,000 yuan to 1,000,000 yuan. The resolution had signatures of “Tian Hongsheng” and “Zhu Jing.”

4. On August 26 of the same year, Rongyan Company held another shareholders' meeting and passed a resolution to increase the registered capital from 1,000,000 yuan to 5,000,000 yuan. The resolution had signatures of “Tian Hongsheng” and “Zhu Jing.”

5. In 2018, Zhu Jing filed a lawsuit against Rongyan Company requesting the court to confirm that she was not a shareholder of Rongyan Company. Both the first instance court in Jianye District, Nanjing, Jiangsu Province, and the second instance court in Nanjing Intermediate People's Court ruled to reject Zhu Jing’s claim.

Key Points of Judgment

1. The shareholder identity and contribution in business registration have external publicity effects. The denial of shareholder qualification concerns significant interests of the company’s creditors and other shareholders. From the perspective of maintaining the publicity effect of business registration and protecting creditor interests, the recognition of false shareholders should be cautious. The person claiming to be falsely registered must bear the burden of proof to show that they were unaware of being registered as a company shareholder and had no intention of becoming a shareholder.

2. The fact that the signature on business registration documents is not the registered person's own signature but someone else’s is only considered indirect evidence for determining that the registered person is not a shareholder.

3. Whether shareholders as recorded in the company’s articles of association have actually fulfilled their contribution obligations does not directly affect their shareholder status.

4. In a negative confirmation lawsuit regarding shareholder qualification, in the absence of direct evidence such as lost or revoked ID cards, factors such as the authenticity of the signature, the duration of the plaintiff’s registration as a company shareholder, whether the plaintiff is familiar with or has familial relations with key company personnel, and other intimate relationships are important elements that the court will examine.

Practical Experience Summary

Lawyers from the “Litigation Storm” team have handled and analyzed numerous legal issues related to this topic. They are professional lawyers on the front line with a strong theoretical foundation and rich practical experience. To avoid similar losses in the future, the following suggestions are made:

1. Resident ID cards are the legal identification of citizens. Citizens should keep their ID cards safe and not lend them to others to prevent misuse of personal identity information. When ID card copies are required, it is advisable to indicate the purpose and validity period on the copies. In case of ID card loss, report it to the local police station and apply for a replacement promptly.

2. In judicial practice, when the court determines whether a shareholder has been falsely registered, it will comprehensively consider factors such as whether the registered person’s ID card has been lost or revoked, whether the signature in the registration materials is personally signed, whether the registered person is familiar with or has familial relations with key company personnel, whether there is suspicion of debt evasion, and whether the registered person has actually contributed and exercised shareholder rights. Therefore, once discovering that one’s identity has been used for company registration, evidence should be collected based on these factors to fulfill the burden of proof in the lawsuit.

Related Laws and Regulations

Supreme People's Court Provisions on Several Issues Concerning the Application of the Company Law of the People's Republic of China (Amendment 2020)

Article 28: Those who use someone else’s name for contribution and register that person as a shareholder with the company registration authority shall bear corresponding responsibilities; the company, other shareholders, or the company’s creditors requesting the falsely registered shareholder to make up for the contribution obligation or compensate for the portion of company debt that cannot be repaid shall not be supported by the people's court.

The following is the court's discussion on this issue in the judgment:

The court considers that this case is a dispute over the confirmation of shareholder qualification. Zhu Jing claims to have been falsely registered as a shareholder of Rongyan Company and requests confirmation that she is not a shareholder. This is a negative confirmation lawsuit. According to the Supreme People's Court's judicial interpretation of Article 29, those who use someone else’s name for contribution and register that person as a shareholder with the company registration authority shall bear corresponding responsibilities; if the company, other shareholders, or the company’s creditors request the falsely registered shareholder to make up for the contribution obligation or compensate for the portion of company debt that cannot be repaid, the people’s court will not support it. It can be seen from the above provisions that if the registered shareholder can provide evidence proving that they were falsely registered as a shareholder and were unaware of it, and had no intention of becoming a shareholder, they can legally claim not to be a company shareholder. However, the shareholder information registered by the business administrative authority has strong credibility. On the one hand, denying the registered shareholder’s status easily involves the protection of creditors, investors, and other interested parties. On the other hand, it undermines the public credibility of the registration, impacts the trust in company registration information, and even shakes the legislative foundation of limited liability. Therefore, the recognition of false shareholders should be cautious, and the claimant should bear the necessary burden of proof.

In this case, based on the evidence in the case, the court found Zhu Jing’s claim untenable for the following reasons: 1. Zhu Jing claims that all business registration materials are signed by others on her behalf. Even if Zhu Jing's signature was signed on her behalf, she failed to sufficiently prove her point regarding the reason for the proxy signature. For the signature “Chen Jing” in the business registration materials of January 18, 2016, Tian Hongsheng provided a reasonable explanation in the first instance, so Zhu Jing’s claim that she is not a shareholder of Rongyan Company lacks basis. 2. Zhu Jing was registered as a shareholder of Rongyan Company in 2012. This registration information is publicly available, and the shareholding information has undergone several changes over the years. Zhu Jing did not file this lawsuit until 2018, claiming she was falsely registered. She was unaware of her identity being misused during the six years when her ex-husband Tian Hongsheng served as the legal representative and managed the company, which is inconsistent with common sense and general social experience. 3. Zhu Jing claims she did not contribute to Rongyan Company. Although Tian Hongsheng clarified that the 100,000 yuan contribution was his personal contribution in the first instance, Rongyan Company was established during Zhu Jing’s marriage to Tian Hongsheng. The 100,000 yuan contribution could not be distinguished as Tian Hongsheng's personal property or marital joint property. Zhu Jing also failed to submit other evidence to confirm her claim regarding family income sources. Therefore, Zhu Jing’s claim that the 100,000 yuan could not be distinguished as marital property was logically incorrect and should not be supported. In conclusion, Zhu Jing’s claim that she never intended to become a shareholder of Rongyan Company and is not a shareholder has no factual or legal basis. The first instance judgment to reject Zhu Jing’s claim was not improper.

In conclusion, Zhu Jing’s appeal request is untenable and should be dismissed.

Case Source

Nanjing Intermediate People's Court, Zhu Jing v. Nanjing Rongyan Advertising Co., Ltd. Shareholder Qualification Confirmation Dispute, Civil Judgment No. [2020] Su 01 Min Zhong 3301

Extended Reading

Judgment Viewpoint 1

The mere proof by the registered person that the signatures on the company’s business registration documents are not their own does not directly lead to the conclusion that the registered shareholder is not a shareholder.

Case 1: Shanghai Jiading District People's Court, Wang Tianze v. Shanghai Yijiu Lin Catering Co., Ltd. Shareholder Qualification Confirmation Dispute, Civil Judgment No. [2022] Hu 0115 Min Chu 6665

Judgment Viewpoint 2

In a lawsuit for shareholder qualification confirmation, if a registered shareholder fails to provide direct evidence that they were falsely registered, and if the registered shareholder had never actually exercised shareholder rights or made contributions, the court may not support their claim of non-shareholder status.

Case 2: Shanghai Minhang District People's Court, Hu Shili v. Shanghai Youzhong Information Technology Co., Ltd. Shareholder Qualification Confirmation Dispute, Civil Judgment No. [2022] Hu 0183 Min Chu 7470

Judgment Viewpoint 3

If a shareholder claims that their name was used without their consent for company registration, but fails to provide adequate proof that they were unaware of the registration and had no intention of becoming a shareholder, the court may reject the claim.

Case 3: Beijing Haidian District People's Court, Li Yuan v. Beijing Zhongcai Technology Co., Ltd. Shareholder Qualification Confirmation Dispute, Civil Judgment No. [2023] Jing 0104 Min Chu 2874

Judgment Viewpoint 4

In disputes over shareholder status, if the registered shareholder has not only failed to exercise shareholder rights but also has no direct evidence of false registration, the court may find in favor of the registered status based on the business registration records.

Case 4: Guangzhou Tianhe District People's Court, Chen Wei v. Guangzhou Yuyang Trading Co., Ltd. Shareholder Qualification Confirmation Dispute, Civil Judgment No. [2023] Yue 0104 Min Chu 1507

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