Shaanxi Chengguo Court adjudicates a case of hidden shareholder equity inheritance

This article is reproduced from: Legal Network

Recently, the Chenggu County People’s Court in Hanzhong City, Shaanxi Province concluded a dispute case regarding shareholder qualification confirmation. The court issued a clear ruling on whether, after the death of a nominee shareholder, the decedent’s heirs may claim inheritance of the equity and effectuate the “nominee-to-official” conversion (i.e., becoming the registered shareholder). The ruling依法 (in accordance with the law) supported the litigation requests of the heir, Wang. This provides clear guidance for handling similar equity inheritance disputes.

In the case, Wang’s spouse, Huang, and a third party, Guo, had jointly invested to establish Company A. Huang held 40% of the shares, while Guo held 60%. On August 8, 2010, Huang and a third party, Zhu, entered into a “Nominee Shareholding Agreement,” stipulating that Zhu would, under his own name and without compensation, hold all of Huang’s equity in Company A on Huang’s behalf. Zhu also declared at the same time that the actual owner of the nominee shares was Huang. On September 9 of the same year, Company A completed the shareholder change registration, and the registered shareholders were changed to Guo and Zhu.

On October 10, 2017, Huang unfortunately passed away. Huang’s children subsequently jointly signed a “Waiver of Inheritance Declaration,” clearly stating their voluntary abandonment of inheritance of the relevant equity in Company A held by Huang. Under these circumstances, Wang, as the lawful spouse of Huang and in the absence of other heirs, believed that she was entitled to inherit Huang’s equity in Company A in full. Wang then filed a lawsuit with the Chenggu County People’s Court, requesting confirmation that she is a shareholder of Company A, and requesting that Company A, within ten days, change the registration of the disputed equity to her name. At the same time, Wang requested that the court order Zhu to fulfill the corresponding assistance obligations.

After trial, the court held that the core issue of this case is whether, after the death of the nominee shareholder Huang, the heirs may inherit the equity and realize the conversion of shareholder qualification into “registered” status. The court stated that, under relevant provisions of the Company Law, after a natural-person shareholder dies, their lawful heirs may inherit the shareholder qualification; however, this is excluded where the articles of association provide otherwise. In this case, Huang and Zhu voluntarily entered into the “Nominee Shareholding Agreement,” which is valid and effective under law. As the actual investor, Huang’s identity as the nominee shareholder is clear, and Company A has no objection to this. Meanwhile, after Huang’s death, her lawful heirs—the children—had already issued a written declaration waiving inheritance. Wang, as the sole legal heir, has proper standing and is a proper party. In addition, Company A’s articles of association do not make any special provisions regarding inheritance of shareholder qualification, and Zhu also clearly agreed to have the disputed equity registered under Wang’s name. In summary, the court, in accordance with the law, made the following ruling: it confirmed that Wang is a shareholder of Company A; and that within ten days after the judgment becomes effective, Company A must change the registration of the 40% equity corresponding to Huang into Wang’s name, and Zhu must perform the obligation to assist in办理 equity change registration.

A judge reminds that, in the context of nominee investment in a limited liability company, after a nominee shareholder passes away, if the heirs claim equity inheritance and seek to achieve “nominee-to-official” status, they need to focus on the following key points: first, clearly define the boundaries of the legal relationship. The inheritance legal relationship and the legal relationship for equity confirmation are independent of each other. For heirs to assert equity inheritance, they must first, through evidence, prove that the decedent is the actual investor of the nominee shares, thereby confirming that the nominee relationship between the actual investor and the nominal investor is true and lawful; second, review the effectiveness of the nominee shareholding agreement. The equity nominee agreement must comply with relevant legal provisions, and only where there are no circumstances rendering it invalid can it be used as a basis to determine the nominee relationship; third, strictly follow procedural requirements. Heirs should fully prepare evidence materials such as proof of investment, the nominee shareholding agreement, and identity-relationship documentation, actively communicate and negotiate with the company and the nominal investor, and strictly follow the procedures stipulated in the law and the company’s articles of association. Where necessary, they should confirm their rights through judicial channels, effectively safeguarding their lawful interests.