A nominee shareholder in Chinese corporate law is a person who agrees to hold shares in a limited liability company in their own name on behalf of the person or entity who makes the actual capital contribution.

Civil disputes about the capital held by a nominee shareholder on behalf of a beneficial owner are resolved through the principles of good faith. For example, a nominee shareholder cannot refuse to pay a debt to a creditor on the grounds that they are not an actual shareholder, but may seek indemnification from the beneficial owner. An agreement between the parties establishes exclusive rights between the nominee shareholder and the beneficial owner, which supersedes evidence, such as the shareholders’ register, in a dispute. Likewise, the beneficial owner may not claim that their actual shareholding entitles them to unilaterally change their nominee shareholder.

The 2011 Supreme Court Rules on Applying the Company Act recognized the nominee shareholder system and provided guidelines for resolving such disputes. The Supreme Court’s rules recognize the legality of nominee shareholder agreements as long as other statutory requirements are followed.

Nonetheless, using nominee shareholders to invest in China is not without its risks, as they are still considered shareholders under the Company Act. Disputes between nominee shareholders and beneficial owners as to who holds title to the shares could arise. Moreover, external third parties sometimes do not recognize the nominee shareholder agreement with the beneficial owner, potentially causing losses. There have been instances where untrustworthy nominee shareholders deceived and misled beneficial owners about material decisions or investor disclosure information, creating a false impression of how the company is managed and its financial condition. Consequently, Chinese law firms often urge their clients to exercise prudence when selecting a nominee shareholder, using a personal friend if possible, and drafting a highly detailed contract. The agreement should ensure that the nominee shareholder keeps the beneficial owner apprised of the company’s business condition and provides them with sufficient information to safeguard their rights.

Further Reading

Nominee shareholders in China bring numerous legal risks

The nominee shareholder system in China is part of its foreign investment regulatory regime. See our comprehensive resources on China’s Foreign Investment Law. and an overview of FDI regulation in our Foreign Investment Law FAQ.

Translation Guide

See: 名义股东