On the procedural requirements for the actual investors of a limited liability company to be named

Author: Liu Chongli Tang Rongna

This article was published in China Applied Law, Issue 5, 2023

[Editor's note]

Paragraph 3 of Article 24 of the Provisions of the Supreme People's Court on Several Issues Concerning the Application of the Company Law of the People's Republic of China (III) regulates the disclosure of the name of the actual investor, in which obtaining "the consent of more than half of the other shareholders of the company" can be called the procedural requirement for the actual investor to be named. In response to the problem that the understanding of the consent rights of other shareholders is too absolute in trial practice, Article 28 of the minutes of the Ninth People's Congress expands the procedural requirements for the appearance of names, from express consent to implicit consent, that is, the other shareholders "have not raised any objection to the actual exercise of shareholder rights" by the actual investors. In the context of the revision of the Company Law, how to correctly understand the above provisions and solve the problem of overly rigid provisions on the procedural requirements for the apparent name of the actual investor, this issue hereby compiles and distributes the "On the Procedural Elements of the Apparent Name of the Actual Investor of a Limited Liability Company" written by Liu Chongli and Tang Rongna of the Second Civil Division of the Supreme People's Court for the benefit of readers.

Executive Summary:

If the actual investor who should be named cannot be revealed, it will not only damage the legitimate rights and interests of the actual investor, but also damage corporate governance. Article 28 of the minutes of the Ninth People's Congress interprets the provision in Article 24 of the Interpretation (III) of the Company Law that the consent of more than half of the other shareholders is required for the actual investor to be revealed, and extends express consent to implied consent, that is, no objection is raised to the actual investor's exercise of shareholder rights. In trial practice, there are different understandings of what is meant by "no objection". Within the existing legal framework, this article argues that raising an objection to the exercise of shareholder rights by an actual investor refers to the exercise of its statutory shareholder rights in the company's operation, and it is only an objection to its request for a prominent name or a non-recognition of its shareholder status, and does not constitute an objection. In addition, the existing procedural requirements for the disclosure of names are too rigid, and in the context of the abolition of the consent of other shareholders in the external transfer of equity in the revised draft of the Company Law, this article proposes to soften this and only make provisions in principle, while clarifying that the procedural requirements are no longer required for the four situations.

Keywords: Actual Contributor, Nominee Shareholder, Apparent Name, Majority Consent, Procedural Requirements

Table of Contents:

1. Problems in judicial practice

II. Within the Existing Legal Framework: Correct Understanding of "Implied Consent"

3. Forward-looking system design: soften the procedural requirements for the actual investor to be famous

(1) Four situations in which the procedural elements should be softened

(2) The theoretical basis for softening the procedural elements

(3) Specific paths for softening procedural elements

epilogue

1. Problems in judicial practice

In practice, there are many inconsistencies between the actual investor and the registered shareholder due to reasons such as hiding wealth, not revealing one's identity, or entrusting shareholding due to restrictions on the number of shareholders, or failing to change the equity due to various factors after the transfer of equity. The so-called actual investor refers to a person who actually contributes capital to the company, but the identity of the shareholder is not recorded in the company, and the company issues a capital contribution certificate to the nominee shareholder, which is recorded in the register of shareholders, the articles of association, and the industrial and commercial registration, but actually enjoys equity income. Article 24, paragraph 3 of the Provisions of the Supreme People's Court on Several Issues Concerning the Application of the Company Law of the People's Republic of China (III) [hereinafter referred to as the "Interpretation of the Company Law (III)"] regulates the disclosure of the names of the actual investors, stipulating: "Where the actual contributors request the company to change shareholders, issue a capital contribution certificate, record it in the register of shareholders, record it in the articles of association of the company, and register with the company registration authority without the consent of more than half of the other shareholders of the company, the people's court will not support it." "The consent of more than half of the other shareholders of the company" can be called a procedural requirement for the actual investor to be named. The substantive requirement for the actual funder's name to be visible refers to the fact that the actual funder's capital contribution has been confirmed, and allowing the fare to be made visible does not violate the mandatory provisions of laws and administrative regulations. Therefore, the procedural requirements for the actual investor to be named refer to the fact that only more than half of the other shareholders of the company need to consent when the substantive requirements for the name of the actual investor are already met.

There are differences in understanding as to whether the consent provided for in paragraph 3 of Article 24 of the Interpretation (III) of the Company Law only indicates consent or includes implied consent, and in judicial practice, there are cases where other shareholders know that the actual contributor has contributed capital and exercise their shareholder rights, and maliciously refuses the actual contributor to register as a shareholder of the company in violation of the principle of good faith, and some courts mechanically apply this provision to reject the litigation claim of the actual contributor in his name Article 28 explains the conditions for the actual investor to be named, holding that: "If the actual investor can provide evidence to prove that more than half of the other shareholders of a limited liability company are aware of the fact of its actual capital contribution and have not raised any objection to the actual exercise of its shareholder rights, the people's court shall support the request of the actual investor to register as a shareholder of the company in accordance with law." If the company argues that the claim of the actual investor does not comply with the provisions of Article 24 of the Judicial Interpretation (III) of the Company Law, the people's court will not support it. This provision greatly solves the problem that it is difficult for the actual investor to become famous because the procedural requirements cannot be met. Although the minutes of the Ninth People's Congress resolved the issue of differences in understanding of the consent provided for in paragraph 3 of Article 24 of the Interpretation (III) of the Company Law, there are still differences in understanding in judicial practice due to the principle of "no objection to the actual exercise of shareholders' rights" stipulated in the minutes. In some cases, the courts of first and second instance made diametrically opposite determinations on the issue of whether the other shareholders were aware of the identity of the actual contributors and the fact that the nominee shareholders were exercising their shareholder rights on their behalf. In addition, after the other shareholders are aware of the identity of the actual investor, and the actual investor also personally participates in the operation and management of the company and exercises the rights of shareholders within a certain period of time, but after the actual investor is removed from the company's position, the other shareholders object to his or her appearance.

The following cases are more typical. In one case, the registered shareholders of Company A were the major shareholder Zhang San (entrusted by Company B to hold shares), and the minority shareholders Li Si and Wang Wu. Zhang San served as the legal representative of the company, and after his death, Company B appointed staff to operate and manage Company A. Li Si and Wang Wu have not participated in the operation and management of the company because they are minority shareholders. After Zhang San's death, due to the inconvenience caused to the company's operation and management, Company B proposed to be famous, but Li Si and Wang Wu refused and denied the identity of Company B's shareholders. Company B then filed a lawsuit for confirmation of shareholder qualifications, and because shareholders Li 4 and Wang 5 continued to oppose the disclosure of their names in the lawsuit, the courts of first and second instance held that Company B had failed to obtain the consent of more than half of the other shareholders to display their names and did not support their disclosure in accordance with Article 24, Paragraph 3 of the Interpretation (III) of the Company Law.

Judging from this case, the parties have no objection to the fact that Company B actually contributed capital, and the substantive requirements for being famous have been met, and the key to whether Company B can be named lies in whether the procedural requirements are met. As for the fact of consent to the procedural elements, it is obvious that there is no express consent in this case, so as for the implied consent, on the face of it, the condition that the other shareholders "have not raised any objection to the actual exercise of their shareholder rights" stipulated in the minutes of the Ninth People's Congress does not seem to be satisfied, because the other shareholders have always refused to recognize the identity of Company B's shareholders, and the court also ruled to dismiss Company B's claim for apparent name on this basis. However, after the judgment was rendered, the actual investor still needed to operate and manage the company and continue to exercise the actual rights of the shareholders, and was not forced to sign on behalf of Zhang San, who was the legal representative, because the judgment did not change due to the change in the judgment. Moreover, the actual investor had been "behind the scenes" for several years when the lawsuit was filed, during which the company's operation and management were completely dependent on the investor, and the other shareholders sat back and enjoyed the results, but they abused their right of consent without justifiable reasons to oppose the actual investor's name.

It can be seen that if the actual investor who should be named cannot be revealed, it will not only damage the legitimate rights and interests of the actual investor, but also damage the corporate governance, and objectively form an unreasonable situation in which the minority shareholders oppress the major shareholders. This leads us to think about how to understand the "no objection to the actual exercise of shareholders' rights" stipulated in the minutes of the Ninth People's Congress? Or, further, how to understand the procedural requirements of "more than half of the consent of other shareholders" as stipulated in Article 24 of the Interpretation (III) of the Company Law? Under the circumstance that the interests of external third parties such as the company's creditors are not involved, and the actual investor's apparent name only involves the company's internal relations, and the substantive requirements for the apparent name are already met, with the development of commercial practice, is the existing provision requiring "the consent of more than half of the other shareholders" too absolute and rigid? Should the legitimate rights and interests of the actual contributors be protected, or how should the interests of the actual contributors be balanced, other shareholders of the company, and the company?

In this regard, in judicial practice, some local courts have recognized this problem and have begun to explore and solve it, indicating that the above-mentioned problems do not exist in individual cases, but have a certain degree of universality. In view of the problems existing in judicial practice, this paper further explores the "no objection to the actual exercise of shareholders' rights" stipulated in the minutes of the Ninth People's Congress, in order to help resolve the differences in understanding, and on this basis, from this issue, from point to point, to make a systematic study on the procedural issues of the actual investor's name. It should be pointed out that the apparent name of the actual investor also involves the protection of the rights and interests of external third parties, and in view of the controversy over this issue, this article will not discuss it for the time being. That is to say, the issue of the apparent name of the actual investor referred to in this article only involves the internal relationship of the company, and occurs between shareholders and the company, and there is no issue of protecting the interests of external third parties.

II. Within the Existing Legal Framework: Correct Understanding of "Implied Consent"

The existing procedural requirements for the disclosure of the name of the actual investor only exist in Article 24, Paragraph 3 of the Interpretation (III) of the Company Law and Article 28 of the Minutes of the Ninth People's Congress. While the Minutes of the Ninth People's Congress expand the interpretation of the consent rights of other shareholders to implied consent, the minutes of the Ninth People's Congress attempt to explore the true subjective situation of the consent of other shareholders through the dual facts of positive facts, i.e., knowledge of capital contributions, and negative facts, i.e., no objection to the exercise of shareholders' rights. In judicial practice, it is easy to understand positive facts, because it is easier to determine whether the fact of capital contribution is known, and the difficulty lies in how to correctly understand the negative fact that "there is no objection to the actual exercise of shareholder rights".

As mentioned above, after the promulgation of the Minutes of the Ninth People's Congress, there are still deviations in practice as to how to correctly understand the essence of the "exercise of shareholders' rights without objection" stipulated in the minutes. The understanding of the essence of the spirit of "no objection to the actual exercise of shareholders' rights" actually involves the understanding of the procedural elements and facts of the name. So, what is an objection to the actual exercise of shareholder rights? To correctly understand this issue, it is first necessary to make it clear that "shareholder rights" and "shareholder qualifications" are not the same concept, and to clarify this premise, it is easy to understand that the meanings of "actual exercise of shareholder rights" and "request for confirmation of shareholder qualifications" are inconsistent, and objections to "actual exercise of shareholder rights" and "request for confirmation of shareholder qualifications" are different and should not be confused.

Article 4 of the People's Republic of China Company Law (hereinafter referred to as the "Company Law") provides for the rights of shareholders. According to this article, shareholders' rights include the right to enjoy the benefits of assets, participate in major decision-making and choose managers. In judicial practice, the exercise of shareholder rights by the actual investor is manifested in various forms, including attending shareholders' meetings, recommending or appointing directors, supervisors and senior managers, directly participating in the company's operation and management activities, or receiving dividends. Shareholder qualification refers to the identity of the shareholder, which is recorded in the register of shareholders and reflected in the company's industrial and commercial registration. According to this understanding, the objection to the exercise of shareholder rights by the actual contributor as stipulated in Article 28 of the Minutes of the Ninth People's Congress refers to the exercise of the statutory shareholder rights by the actual contributor in the operation of the company, i.e., the right to enjoy asset returns, participate in major decision-making and select managers, etc., and the other shareholders only oppose the request of the actual contributor to be named or do not recognize the shareholder identity of the actual contributor, which is an objection to the confirmation of his shareholder qualifications, but does not constitute an objection to the actual contributor's "exercise of shareholder rights", which does not constitute a valid objection.

It should be pointed out that the actual exercise of shareholder rights does not mean that the actual contributor directly exercises the shareholder rights, and the way to exercise the shareholder rights can be in two situations: one is that the nominee shareholder exercises the shareholder rights on behalf of the nominee shareholder, and the nominee shareholder discloses the identity of the actual investor to more than half of the other shareholders, indicating that the shareholder rights are exercised in accordance with the instructions of the actual contributor; The other is that the actual contributor directly participates in the company's decision-making and business activities without the nominee shareholder.

The actual exercise of shareholder rights also involves the understanding of the time limit. The minutes of the Ninth People's Congress stipulate that other shareholders "have not raised any objection to the actual exercise of shareholder rights" by the actual investors, and do not clearly stipulate the time limit for the actual exercise of shareholder rights. So, does the exercise of shareholder rights by the actual contributor need to be continuous and cannot be interrupted, otherwise it will be deemed that the shareholder rights have not been actually exercised? This article argues that such an understanding is unnecessarily harsh on the actual investor, as long as it exceeds a certain reasonable period. There is a view that "if more than half of the shareholders do not explicitly raise an objection within how long they know that the actual investor is exercising their shareholder rights, they can presume to agree, and the judgment should be made on a case-by-case basis." In practice, a comprehensive judgment can be made based on various factors such as the type of shareholder rights exercised by the actual investors, the closeness of their participation in the operation and management of the company, and the ease of contact with more than half of the other shareholders." This article shares this view. The purpose of the human compatibility of a limited liability company is to maintain the relationship of trust between shareholders, so that the company can operate and manage normally without the occurrence of corporate deadlock. For some rights of shareholders, such as pure property rights, this type of rights is not closely related to the operation and management of the company, and the period for the actual exercise of rights can be appropriately extended, but for the rights to participate in the operation and management of the company, especially the right to directly participate in the operation and management of the company, the right to participate in major decision-making and the right to choose managers, the period can be appropriately shortened.

3. Forward-looking system design: soften the procedural requirements for the actual investor to be famous

The legislative intent of the Interpretation (III) of the Company Law stipulates the "procedural elements" because in order for a hidden investor to be recognized as a shareholder, it needs to be approved by other shareholders of the company, so as to ensure that the personal compatibility of a limited liability company is not undermined. The issue of the apparent name of the actual investor "is to a certain extent similar to the issue of the transfer of equity by a shareholder to a person other than the shareholder of the company, that is, it involves the acceptance of a 'new unfamiliar shareholder', so the restriction on the transfer of shares under article 71 of the Company Law should be applied, i.e., the consent of more than half of the other shareholders is sufficient". It is worth noting that the Company Law is being revised, and the revised draft, whether it is the first draft, the second draft or the third draft, has abolished the provision that the transfer of equity by shareholders of a limited liability company shall be subject to the consent of more than half of the other shareholders, and no longer gives the consent rights of other shareholders, but only stipulates the preemptive right of other shareholders, which shows that the right to cancel consent has basically been determined. Article 84 of the Draft Amendment to the Company Law (Third Draft) stipulates that "shareholders of a limited liability company may transfer all or part of their equity to each other. Where a shareholder transfers equity to a person other than a shareholder, it shall notify the other shareholders in writing of the quantity, price, payment method and term of the equity transfer, and the other shareholders shall have the right of first refusal under the same conditions. "Although the draft has not yet been formally adopted, the signal released to cancel the right of shareholders' consent is worth paying attention to, and it is particularly necessary to think about the fact that since the procedural requirement for the actual investor to be named is the rules for the external transfer of equity, once the article is formally passed, the basis for approval no longer exists, and what should be done at that time?

There is a view that, after all, the apparent name of the actual investor is only similar to the external transfer of equity to a certain extent, but it is not exactly the same, and the removal of the condition of "with the consent of more than half of the other shareholders" for the external transfer of equity does not mean that the procedural requirements of the actual investor have changed. This article argues that, since there is a distinction between complete and incomplete anonymity of the actual investor, as far as the former is concerned, since the fact of the actual investor's capital contribution is not known inside and outside the company, it is objectively similar to the external transfer of equity, and there is a problem of acceptance of "new unfamiliar shareholders" in its prominent name, and failure to regulate it will objectively destroy the human compatibility of the limited liability company. However, for the actual investors who are not completely anonymous, the company and other shareholders know the existence of the actual investors, imply and approve the actual investors to exercise their shareholder rights, and even rely on them to operate and manage the company, and there is no problem of accepting the so-called "new strange shareholders", and allowing the name to be displayed will not violate the legislative intent, nor will it cause damage to the personal compatibility of the limited liability company, let alone adversely affect the operation and management of the company.

The existing provisions do not distinguish between the actual investors in the two states of complete anonymity and incomplete anonymity, and require the procedural requirements of more than half of the consent, which is too rigid, and also leads to inconsistent adjudication standards in judicial practice, undermining judicial authority and credibility. In addition, the existing provisions do not take into account the subjective status of other shareholders in exercising their right of consent, and do not address the circumstances in which other shareholders maliciously prevent the establishment of the procedural requirements for the manifestation of the name, as well as the circumstances in which the nominee shareholder's qualifications are extinguished, which also leads to the phenomenon of legality and unreasonableness in the adjudication. In fact, the minutes of the Nine People's Congress have recognized this problem, and the adoption of the position of "tacit consent" actually indicates a change of attitude, but it is limited by the nature of judicial policy documents, "this article does not directly change the provisions of Article 24 of the Interpretation (III) of the Company Law, but only provides a further interpretation of Article 24 that 'the actual investors do not have the consent of more than half of the other shareholders of the company' as stipulated in Article 24". That is, to use the method of expansive interpretation to make up for the imperfections of the provisions of the judicial interpretation.

Therefore, on the occasion of the revision of the Company Law, it is necessary to propose a forward-looking system design to soften the procedural elements in response to the above-mentioned circumstances, which are detailed below.

(1) Four situations in which the procedural elements should be softened

1. Reveal your name internally from the beginning

Intriguing is a form of incomplete anonymity in which more than half of the other shareholders of the company are aware of the fact that the actual contributor has contributed capital from the beginning, but the external entity of the company is not aware of it. The preparation, establishment, operation and other stages of the company can exist, and this situation is the most common in the litigation disputes over the actual investor's name. In practice, there are different understandings as to whether it is necessary to adhere to the procedural elements in this regard. According to the adjudication opinions of some courts, even if the actual investor is known internally from the beginning and exercises shareholder rights as a shareholder, as long as other shareholders oppose it, it is still necessary to adhere to the procedural requirements; Some courts held that the identity of the actual contributor was clear and recognized by the other shareholders, and that after the establishment of the company, the actual contributor requested to end the situation of the equity being held on behalf of the company, which did not violate the agreement and could be revealed.

This paper argues that, in the case of internal disclosure from the beginning, since the actual investor has identified itself at the beginning, and the other shareholders or the company accept or acquiesce to it, it means that there is more trust between them, especially when establishing the company, the compatibility is stronger, and the other shareholders actually accept the status of the shareholder of the actual investor, so there is no need to require procedural requirements, and the apparent name can be directly supported. In particular, when the parties make an agreement on the disclosure of the name when establishing the company, and the investors of the company have not changed since then, it is even more necessary to respect the agreement of the parties, and then require procedural elements at this time, which is too mechanical and violates the autonomy of the parties.

2. Follow-up internal name

Subsequent internal disclosure refers to the fact that the company or other shareholders do not know the actual investor at the beginning, and the actual investor later discloses his identity so that other shareholders know, and the external entity of the company has not been aware of this, which is also a form of incomplete anonymity. There are two situations: one is that the actual investor exercises shareholder rights within a period of time, and the other is that he has not exercised his shareholder rights, such as not participating in the company's operation and management, and the company is not operating well and cannot enjoy dividends. For the exercise of shareholder rights, according to the minutes of the Nine People's Meeting, the name can be supported, or if the company recognizes the exercise of rights as a shareholder, it can also be named. Paragraph 1 of Article 19 of the Provisions of the Supreme People's Court on Several Issues Concerning the Trial of Corporate Dispute Cases (I) (Draft for Comments) stipulates that: "Where an investor agrees with another person to make capital contributions in the name of that other person, the agreement shall not be against the company." However, if more than half of the other shareholders of a limited liability company are aware of the capital contribution of the actual contributor, and the company has approved the exercise of their rights as a shareholder, the people's court may determine that the actual contributor has equity in the company if there are no circumstances that violate the mandatory provisions of the law. Although the article was eventually deleted, it also represented an important point. So what should be done if the rights are not actually exercised? Scholarly understanding of this is divided. One view is that "under normal circumstances, anonymous shareholders can obtain shareholder qualifications, and only if they are completely anonymous and more than half of the other shareholders of the company do not agree". In other words, as long as the actual funder is not completely anonymous, there is no need for procedural requirements. There is also a view that "if it can be determined that the anonymous shareholder is 'known to the company' and acquiesced in based on other facts such as attending shareholders' meetings, directly participating in dividends, directly exercising rights, etc., the consent of more than half of the other shareholders is, in principle, no longer a procedural requirement for the identification of the anonymous shareholder". In other words, only when the actual contributor who is not completely anonymous actually exercises the shareholder rights, can the procedural elements be exempted. This article agrees with the latter viewpoint, because the degree of trust between the actual investors who are subsequently revealed is relatively weak, unlike the initial names, and the other shareholders are not aware of the nominee shareholder's exercise of shareholder rights on behalf of the nominee shareholder before the identity is disclosed, so if the actual investor does not exercise the shareholder rights, it is still necessary to examine whether the other shareholders agree to be named in order to protect the company's personal compatibility.

3. The procedural element of malicious obstruction is established

The establishment of the procedural element of malicious obstruction refers to the fact that more than half of the shareholders knew in advance about the existence of the actual investor, but when the actual investor claimed to be prominent, in order to prevent the apparent name, transferred part of the shares held by them to the outside world, so that the procedural requirements for the actual investor's name were not met, and the transferee knew or should have known about it. For example, if the initial registered shareholder of a company is A, and B later increases the capital of the company and entrusts A to hold shares on behalf of the company and becomes the actual investor, but there is no evidence to prove that B actually exercised the rights of a shareholder. When B claimed to be famous, in order to prevent B from becoming a prominent shareholder, A nominally transferred part of the shares held by B to his close relatives and went through the industrial and commercial change registration. In the lawsuit, the registered shareholders all objected to the appearance of B. Under such circumstances, it is difficult for B's claim to be supported, either in accordance with Article 24, Paragraph 3 of the Interpretation (III) of the Company Law or in accordance with Article 28 of the Minutes of the Ninth People's Congress. Although the example of this institute is imagined by the author, it is entirely possible in reality.

If the transferee knows or should know about the fact that the actual investor is maliciously prevented from being named through the representation of equity transfer, is there still a procedural element when the actual investor claims to be famous? This article argues that judicial protection should not be provided for such malicious transfer of equity to prevent the appearance of a name. According to article 154 of the Civil Code of the People's Republic of China, "civil juristic acts in which the actor maliciously colludes with the counterparty to harm the legitimate rights and interests of others are invalid", and after the determination is invalid, the actual investor may be named. However, in this case, the actual investor needs to file a lawsuit for the invalidity of the equity transfer act first, and then file a lawsuit for the name of the person, which is cumbersome and costly.

4. The nominee shareholder's qualifications are extinguished or the capacity for conduct is restricted

The extinction of the nominee shareholder's qualification refers to the death of the registered nominee shareholder when he is a natural person and the cancellation of the company when he is a legal person, resulting in the objective inability of entrusting the nominee shareholder. In particular, when the nominee shareholder also serves as the legal representative, if its reputation and reputation are good, and it is a well-known person in the industry, after his death, he is still registered as the legal representative, which does not match the name. In this case, if a person who relies on the nominee shareholder as the legal representative of the company, i.e., a person who relies on the appearance of the registered entity, and deals with the company, because the facts relied on are false, the trust interests are damaged, which is actually contrary to the trust protection of the commercial appearance doctrine. Limited capacity of nominee shareholders means that when the nominee shareholder is a legal person, it enters bankruptcy or liquidation procedures, and when it is a natural person, it becomes a person with no or limited capacity for civil conduct, and the nominee shareholder does not have full capacity for civil conduct at this time. In this case, although the nominee shareholder's qualification as an entity has not been extinguished, due to the limited capacity for conduct, its rights are vulnerable to damage if the actual investor is not provided with a remedy channel.

Specifically, for example, in the case of entrusted shareholding, due to the separation of shareholder qualifications and investment interests, the actual investor generally enjoys investment rights and interests through the nominee shareholder's association with the company, and after the nominee shareholder's qualification is extinguished or the capacity for conduct is restricted, the bond between the nominee shareholder and the company is severed, and the actual investor is unable or difficult to indirectly exercise the rights of shareholder identity through the nominee shareholder, such as the right to choose managers, the right to vote, the right to know, etc., and the property rights are also easily infringed. If no relief channel is provided, the actual investor will fall into an embarrassing dilemma of having no way to advance (making a name for himself) and no way to retreat (withdrawing from the company or transferring equity).

There is a view that, according to paragraph 3 of Article 35 of the Draft Amendment to the Company Law (Third Draft), if a company changes its legal representative, the application for change of registration shall be signed by the changed legal representative. Once the draft is passed, if the nominee shareholder dies as the legal representative of the company, there is no legal obstacle to the change, and the problem of inconsistency in commercial registration has been solved, as for the issue of the actual investor's request for a prominent name, it should bear its own risk. However, the crux of the problem is that in some cases, there has been a corporate deadlock, and it is difficult to convene a shareholders' meeting to change the legal representative, resulting in damage to the corporate governance structure. In judicial practice, there have been cases that directly support the disclosure of the actual investor's name, holding that in the absence of the nominee shareholder and the objective nominee holding relationship, it is not appropriate to require procedural requirements, otherwise the legitimate rights and interests of the actual investor and the company will be seriously harmed.

This article argues that in the special circumstances of the extinction of the nominee shareholder's qualifications or the restriction of his or her capacity, in order to take into account the legitimate rights and interests of the actual contributors and the rights and interests of other shareholders, and to maintain the company's personal compatibility, it can be handled in accordance with the path of equity transfer, and the other shareholders are allowed to become prominent if they do not purchase the equity. Of course, if other shareholders purchase equity, the right of the actual investor is only to obtain the equity transfer money, and cannot be directly named.

To sum up, it can be seen from the above analysis that the current procedural requirements are too rigid and difficult to cover various complex situations in judicial practice. If the actual investor who should be named claims to be famous, if he cannot obtain the consent of more than half of the other shareholders, he will never be able to be named, and disputes such as malicious transfer of equity by the nominee shareholder will also arise, which will lead to a lose-lose situation between the other shareholders of the company and the actual investor, and even lead to a deadlock in the company.

(2) The theoretical basis for softening the procedural elements

1. Reflection on the concept of human compatibility of limited liability companies

The Interpretation (III) of the Company Law stipulates that the theoretical basis for the procedural requirements for the actual investor to be named is the theory of the personality of a limited liability company. According to the traditional theory of company law, the human nature of a limited liability company requires the shareholders of the company to establish a relationship of mutual understanding and friendship and trust, otherwise it will cause greater obstacles to the daily operation of the company. It is worth noting that in recent years, scholars have criticized the overemphasis on the human compatibility of companies, pointing out that "strengthening the legislative thinking of corporate human compatibility may also lead to the relevant rules being too rigid", "the dogmatization of the judiciary in dealing with the issue of human compatibility", and "even if the relevant norms applied to the settlement of disputes involve the legislative intent of safeguarding human compatibility, it does not mean that it is necessary to absolutely safeguard human compatibility in individual cases". Some scholars even believe that "with the separation of the legally compulsory relationship between personal compatibility and equity transfer, personal compatibility, which is the fundamental attribute of a limited company, will come to an end". It is true that the basis of the liability of a limited liability company lies in the capital contribution of shareholders, and although it has significant characteristics of personal cooperation, the basic nature is still capital cooperation. The actual investor's capital contribution to the company has become the basis of the company's liability property and the basis of the company's existence, and its legitimate rights and interests formed by the capital contribution cannot be ignored.

Under the guidance of the concept of strengthening the compatibility of people, the existing provisions are too rigid on the procedural requirements for the actual funder's apparent name, which leads to rigidity and dogma in the trial of disputes over the actual funder's dissemination in judicial practice, which raises the issue of legality, unreasonableness or legality. Some scholars have pointed out that "human compatibility is only a characteristic aspect of a limited liability company, which is neither its essential attribute, nor its supreme value pursuit, nor its unbreakable law, which means that human compatibility should also be tested by purpose and obtained the basis of legitimacy". "In some cases, human compatibility has become a powerful weapon for powerful shareholders to make decisions and decisions, or it has degenerated into a means for shareholders to check and balance each other, and to a considerable extent deviates from its original meaning." Based on this, three substantive criteria are proposed, namely, "the compatibility of persons shall not conflict with the interests of the company as a whole", "the compatibility of persons shall not conflict with the basic principles of general law such as good faith", and "the purpose of compatibility of persons shall be justified in itself".

This article agrees with this view, and in fact, the problems pointed out by scholars do objectively exist in judicial practice. In judicial practice, the examination of personal compatibility is generally only based on the formal requirements, that is, whether it meets the procedural requirements agreed by more than half of the other shareholders, and whether the other shareholders use the maintenance of the company's personal compatibility as a rhetoric or confrontational means to conform to the overall interests of the company, whether it violates the principle of good faith, and whether it maliciously suppresses the appearance of the actual investor, etc., are ignored, and there is rarely a substantive examination of the personal compatibility from the perspective of the legitimacy of the purpose. To some extent, the concept of the personality of a limited liability company has been abused or generalized.

2. Equitable allocation of conflicting interests based on fairness and justice

According to the rule of "distinction between inside and outside" of the Commercial Law, the external focus of the company is to protect the security of transactions and the speed of transactions, and to implement the principle of commercial appearance, while the internal focus of the company is to protect the security of investment, maintain the stability of the company's legal relationship, and respect the autonomy of the company. Therefore, in the process of revealing the name of the actual investor, the agreement of the parties should be respected when there is a conflict of interest between the actual investor and other shareholders of the company. There may be a view that since the actual investor chooses to remain anonymous and enjoys the benefits brought by the anonymity, it should have predicted the risks and should bear the relevant risks and legal consequences on its own, so it should give priority to protecting the interests of other shareholders. This paper argues that the phenomenon of the anonymity of the actual funder has its complex reasons and is also reasonable. The rational choice should be to respect the transaction practice and provide protection for the legitimate and legitimate rights and interests of the actual investor, and in fact the issue of the actual investor's name also involves the interests of the company.

To sum up, when there is a conflict between the interests of the actual investors and the interests of other shareholders of the company, the interests of the actual investors and other shareholders and the company should be balanced with fairness and justice as the value orientation. When weighing the interests of different subjects, it is necessary to combine the specific spatio-temporal background, implement the company's autonomy, explore the true intentions of the parties, and compare the interests of one party that are more worthy of protection by the law, so as to design the system and finally determine the interests of the system. This is a process of weighing interests and designing systems, as well as a process of implementing justice. There is room for improvement in the existing provisions in comparing the legal interests of the conflict and balancing the interests of the parties to the conflict.

(3) Specific paths for softening procedural elements

Some scholars have pointed out that "the path to the disclosure of the actual investor should not be limited to the formal criterion of the consent of more than half of the other shareholders, but should examine from the substantive level whether the actual investor's disclosure will infringe on the company's personal compatibility. Indeed, with regard to the procedural requirements for the apparent name of the actual investor, the emphasis should be on whether the apparent name infringes on the company's personal compatibility, whether the purpose of other shareholders to oppose the apparent name on the grounds of personal compatibility is justified, and whether it conforms to the principle of fairness and justice, so as to balance the interests of the actual investor and other shareholders. Therefore, when designing a forward-looking system, a principled provision can be made first, stipulating that when the actual investor claims to be famous, it can support the disclosure of the name if it does not harm the company's personal compatibility. At the same time, in order to increase the operability of the provisions, the procedural requirements for no longer requiring the consent of more than half of the other shareholders are clarified in the following four circumstances. Specifically:

1. The actual funder who has been named internally from the beginning. If more than half of the other shareholders of the company know the identity of their actual investors at the beginning, they shall be deemed to have agreed to be named. As for whether the actual investor actually exercises the rights of shareholders and participates in the operation and management of the company, it is not asked. In other words, paragraph 3 of Article 24 of the Interpretation (III) of the Company Law stipulates that the "other shareholders" in "with the consent of more than half of the other shareholders" do not include shareholders who know and approve the actual investors in advance, and the "other shareholders" here should refer to other shareholders who are completely unaware. In fact, some documents issued by local high courts already contain such views, such as the Guidelines for the Adjudication of Several Issues Concerning the Trial of Corporate Dispute Cases by the Second Civil Division of the High People's Court of Guangxi Zhuang Autonomous Region (Gui Gao Fa Min 2 [2020] No. 19), which stipulates that: "32. [Rules for Anonymous Capital Contribution in Internal Disclosure] If the relationship between the actual investor and the nominee shareholder is well known and recognized by the company and other shareholders, certain adjustments shall be made to the relevant internal rules of the company on the premise of not denying the shareholder qualifications of the nominee shareholder...... (4) The process of 'concealment to manifestation' of the actual investor can be simplified, especially if more than half of the other shareholders know, the majority consent of the other shareholders can no longer be obtained...... "However, the scope of application of this document is broader, and for the actual investors who are not completely anonymous, there is no distinction between the initial and subsequent internal manifestation, and as long as the other shareholders know their identity, the procedural requirements can no longer be required. However, as pointed out in the previous analysis, it is still necessary to increase the restriction on the fact of actually exercising shareholder rights for the actual investors who are subsequently revealed internally.

2. Subsequently, if the actual investor continues to exercise shareholder rights for a period of time, and more than half of the shareholders know or should know about it and acquiesce or approve it, it shall be deemed to have agreed to the apparent name.

3. Other shareholders maliciously obstruct the establishment of procedural requirements. At this time, it should be deemed that the requirements are established, and the actual investor should be allowed to show his name.

4. The nominee shareholder's qualifications are extinguished or the capacity for conduct is restricted. In this special circumstance, if other shareholders do not purchase the equity of the actual investor, they shall be allowed to be revealed.

▐ Conclusion

In response to the problem that the understanding of the consent rights of other shareholders is too absolute in trial practice, Article 28 of the Minutes of the Ninth People's Congress expands the procedural requirements for the disclosure of names, from express consent to implicit consent. This article clarifies this within the existing legal framework, pointing out that the objection to the exercise of shareholder rights by the actual contributor refers to the exercise of the statutory shareholder rights by the shareholder in the operation of the company, i.e., the right to enjoy asset returns, participate in major decision-making and the selection of managers, etc., and is only to oppose the requirement of the actual contributor to be named or not to recognize the shareholder status of the actual contributor. The minutes of the Ninth People's Congress stipulate that the actual investor shall raise an objection to the exercise of shareholder rights. In addition, the actual exercise of shareholder rights does not require that the state of exercising rights is continuous, as long as a reasonable period of time has passed. In view of the fact that the existing provisions are too rigid on the procedural requirements for the actual investor's apparent name, in the context of the abolition of the consent rights of other shareholders in the external transfer of equity in the revised draft of the Company Law and the reflection of scholars on the concept of the personality of a limited liability company, this paper argues that the procedural requirements for the apparent name of the actual investor should be softened from the perspective of legislative theory, and proposes a forward-looking system design. Subsequently, the actual investor with the name of the internal shareholder actually exercises the shareholder rights within a certain period of time, other shareholders maliciously prevent the establishment of procedural requirements, and the nominee shareholder's qualifications are extinguished or the capacity for conduct is restricted. In this way, the personal value of the limited company will be re-aligned, and the legitimate rights and interests of the actual investors and the company and other shareholders can be balanced.