Introduction

How to confirm shareholder qualification remains a difficult issue in China’s theory and practice. As important internal company documents, shareholder registers should play an important role in confirming shareholder identity. However, in reality, the importance of shareholder registers has been consistently diminished, and their legal significance and practical effectiveness have been marginalized. This creates a legal predicament. For a limited liability company, what is the actual significance of the shareholder register? If its legal significance is so ambiguous, can we discard the corresponding provisions? Additionally, does the shareholder register system fail to adapt to China’s legal environment? Or should the existing shareholder register system be reformed? These issues will be explored in this article. According to legal provisions, securities registration and settlement institutions have the obligation to produce shareholder registers for listed companies. This article specifically addresses shareholder registers for limited liability companies; shareholder registers of joint-stock companies are outside the scope of discussion.

I. Legal Effect of Shareholder Register

A. Rights Presumption Effect of Shareholder Register

The shareholder register is an internal registration document confirming shareholder qualification and has the effect of presuming shareholder rights. A party recorded as a shareholder in the shareholder register need not separately present stock certificates or capital contribution certificates, nor need to separately provide evidence of their substantive rights to the company. Relying solely on the shareholder register itself creates an independent rights appearance, formally possessing shareholder qualification or nominal ownership status, sufficient to assure rights counterparties of their identity and enable corresponding conduct.

It should be noted that parties entitled to claim the presumption effect of the shareholder register are limited to the company itself and its shareholder members; third parties do not benefit from this presumption effect.

Both common law and civil law jurisdictions generally recognize this effect. For example, according to UK Company Law CA 2006, “the register of members is prima facie evidence of any matters directed or authorized by this Act to be inserted in the register.” Another example is Article 67, Paragraph 2 of the German Stock Corporation Act: “In relations with the company, only those entered in the share register can be shareholders.”

However, there is a significant gap between the ideal and reality. In China, the presumption effect of shareholder registers can be easily overcome. Judges should first examine shareholder identity through the shareholder register, but in legal practice, judges often skip the shareholder register and comprehensively examine all case evidence to determine shareholder qualification. This has great relevance to China’s current legal situation, which will be elaborated below.

B. Opposability Effect of Shareholder Register

The opposability effect of the shareholder register means that even if there is a legitimate and effective equity transfer, if the shareholder register has not been nominally changed, shareholder rights cannot be exercised against the company. However, it should be noted that this opposability effect specifically refers to the company itself, not third parties. Therefore, if the assignee has already acquired the equity, even without registration in the shareholder register, they can assert equity rights against third parties.

This effect is particularly evident in UK law. UK company law distinguishes between shareholders and members. Those not yet registered as company members only enjoy shareholders’ dividend rights but do not enjoy rights as members such as participating in company meetings or exercising voting rights on resolutions. Once a shareholder is registered, they become a member and enjoy complete rights similar to those under China’s Company Law regarding shareholders. This is also why the shareholder register is particularly important in the UK legal system.

Article 206, Paragraph 1 of the Japanese Commercial Code provides: “A person who acquires shares by transfer cannot assert such acquisition against the company unless the acquirer’s name and address are entered in the shareholder register.” Article 209, Paragraph 1 provides: “Where shares are pledged as collateral, when the pledgor requests, the company records the pledgee’s name and address on the shareholder register and stock certificate as pledge registration, special effect arises.”

Taiwan Province also follows Japan and has made the same provisions in Article 165, Paragraph 1 of its Company Law: “Transfer of shares is not effective against the company unless the transferee’s name or designation and domicile or residence are entered in the company’s shareholder register.”

C. Exemption Effect of Shareholder Register

The exemption effect of the shareholder register is closely related to its presumption effect. Because the company can presume that parties recorded in the shareholder register are shareholders, the company is exempted when issuing meeting notices, distributing dividends, distributing remaining assets, confirming voting rights, confirming new share subscription rights, etc., to nominal shareholders, even if that nominal shareholder is not the actual shareholder. Additionally, the exemption effect of the shareholder register extends to other information recorded in the shareholder register, including addresses and contact information. This exemption effect mainly applies in scenarios such as equity holding arrangements and equity changes. If the name, address, contact information, and other information recorded in the shareholder register are inaccurate, causing shareholders to fail to receive notices, the company is exempted from liability.

II. Legislative Evolution of Shareholder Register in China’s Company Law (Historical Development)

China’s company legal system can be traced to the late Qing and early Republican period. However, from the 1929 Company Law, the company legal framework and regulatory system truly began to take shape. The shareholder register, as important content in commercial legal regulations, has also evolved dynamically with legal regulations.

A. 1929 Company Law

In the 1929 Company Law, three provisions addressed the application of shareholder registers. The first provision: “Transfer of registered stock is not effective against the company and third parties unless the transferee’s name, address are entered in the company’s shareholder register and the transferee’s name is entered on the stock certificate.” This provision is similar to Articles 130 and 139 of China’s current Company Law, regulating that companies issuing registered stocks shall prepare shareholder registers and transfer registered stocks, with consistent legal logic.

The second provision: Article 126 listed six items that shareholder registers should record: (1) each shareholder’s share quantity and stock certificate numbers; (2) each shareholder’s name and address; (3) amounts of paid shares and dates of payment for each share; (4) dates each share was acquired; (5) for issuing bearer stocks, their quantities, numbers, and issuance dates; (6) for issuing preferred stocks, note “preferred” under the stock number. Through the above, it can be seen that as early as 1929, legislative technique had reached relatively high standards, but no distinction was yet made between limited liability companies and joint-stock companies’ shareholder register systems.

The third provision: Article 231, regarding penalty provisions for shareholder registers: “Companies’ executive shareholders, sponsors, directors, supervisors, and liquidators who refuse inspection without justified reasons, or who fail to maintain in the company’s main place the documents required by this Law for inspection, or make false entries, may be fined up to 500 yuan.” This third provision is actually a more detailed regulation of shareholder registers in legal practice. The reason China’s current shareholder register system exists in name only is largely because there are only legal requirements to “prepare” shareholder registers but no corresponding provisions for “penalties for failure to prepare,” reducing shareholder registers to dispensable items.

B. 1946 Company Law

The 1946 Company Law can be considered the first comprehensive codification of China’s company legal system, laying a good foundation for the subsequent development of company legal systems. Article 111 provided: “The company shall maintain a shareholder register at its main place of business, recording: (1) each shareholder’s contribution amount and share certificate numbers; (2) each shareholder’s name or designation and address; (3) dates of contribution payment. Company responsible persons who fail to maintain the shareholder register required in the first paragraph at the company’s main place, or make false entries in the shareholder register, may each be fined up to 1,000 yuan.” It can be seen that regulations on shareholder registers at that time already had some similarity to current legal provisions. Differences remain that it did not provide for “failure to maintain shareholder register” or “false entries in shareholder register.”

C. 1993 Company Law

It was not until 1993 that China finally promulgated its own Company Law. However, due to a long period lacking traditional listing environments, company legal systems faced legislative gaps. Due to this legislative discontinuity in company law, when reconnecting, it only included Article 31: “Limited liability companies shall maintain a shareholder register, recording: (1) shareholders’ names or designations and addresses; (2) shareholders’ contribution amounts; (3) contribution certificate numbers.” At this time, legal provisions still lacked regulations on liability, and did not include the opposability legal effect that shareholder registers should have.

D. 2004 Company Law

Before the 2004 revision to the Company Law, the 13th meeting of the 9th NPC Standing Committee amended the Company Law in 1999, but there were no amendments to shareholder registers. It was not until 2004 that shareholder register content was amended, adding two new paragraphs on the original basis: “The company shall register shareholders’ names or designations with the company registration authority” and “The company shall register shareholders’ names or designations and their contribution amounts with the company registration authority; if registration matters change, amendment registration shall be handled. Failure to register or amend registration cannot be asserted against third parties.” At this point, the shareholder register system exhibited opposability legal effect.

This 2004 amendment remains China’s most recent addition to shareholder register-related content. For nearly two decades, social practice has been continuously changing, but law has not followed with improvement and supplement, leaving the shareholder register system in an extremely awkward position.

Due to China’s company law development having a long self-development process, although existing legal provisions on shareholder registers are relatively simple and incomplete, various judicial interpretations have been issued in legal practice to address incomplete legal provisions, refining different legal disputes and providing relatively complete solutions. For example, Article 25, Paragraph 3 of Company Law Interpretation (III) provides solutions for nominal and actual shareholder issues. However, it must be acknowledged that whether nominal/actual shareholder issues or priority issues between shareholder registers and industrial-commercial registration, all stem from incomplete shareholder register systems. Due to incomplete shareholder register provisions, many contradictions and conflicts exist in legal practice that have not been reconciled to this day. The following will provide specific in-depth analysis.

E. Repeal of 2007 Guarantee Law

Article 78, Paragraph 3 of the Guaranty Law of the PRC provided: For pledge of shares of limited liability companies, provisions on share transfer in Company Law apply. The pledge contract becomes effective when the share pledge is recorded in the shareholder register. However, upon effectiveness of the Property Law on October 1, 2007, the Guaranty Law was simultaneously repealed, and the effectiveness requirements for limited liability company share pledge contracts underwent significant changes. In 2021, the Civil Code absorbed the Property Law’s relevant content. According to Article 443 of the Civil Code, when fund shares or equity are pledged, the pledge right is established when pledge registration is completed. It can be seen that after 2007, share pledge contracts of limited companies no longer use recordation in the shareholder register as the effectiveness requirement, but rather registration. This means that after 2007, Chinese law has intentionally weakened the legal status and effect of shareholder registers, reducing their legal application scenarios and preventing shareholder registers from becoming an important basis affecting equity changes. This legislative trend must be observed.

III. Social Effect of Shareholder Register in China

A. Shareholder Register Cannot Directly Determine Shareholder Qualification

The 2004 amendment to the Company Law added a second and third paragraph to Article 32. The second paragraph provides: “A shareholder recorded in the shareholder register may exercise shareholder rights based on the shareholder register.” This provision is actually quite prone to ambiguity. If shareholders “may” exercise rights based on the shareholder register, does that mean shareholders have other methods to exercise shareholder rights? If there are other methods, does that conflict with the purpose of the shareholder register? Additionally, what are these other methods? These issues have not been resolved. Due to these legislative gaps, they must be remedied by other means.

The 2012 Shanghai Court Financial Trial White Paper and Financial Trial Top Ten Cases case: Bank A v. County A State-owned Assets Supervision Commission and others financial loan contract dispute, provides a judicial precedent. The court’s key holding: “If the shareholder register submitted by the borrower to the bank does not conform to the characteristics of shareholder registers established by law in terms of form and recorded content, that shareholder register does not have legal effect.” In this case, the court held that the “shareholder register” maintained by a certain textile company as a limited liability company should conform to the basic requirement of continuously recording shareholder changes over the years, and should be archived at the company for timely recording of shareholder changes, not kept at institutions outside the company. The “shareholder register” submitted by Bank A only recorded shareholder situations at the relevant time, without complete records of shareholder changes and equity transfers since the company’s establishment, and did not conform to the characteristics of shareholder registers established by law in terms of form and recorded content. Therefore, while the shareholder register is one basis for determining shareholder qualification, if its recorded content is not updated in a timely manner, its storage location is inappropriate, or the recorded parties are not qualified, among other factors, these may all cause the shareholder register to fail to directly determine shareholder qualification, let alone comparing with the effectiveness of industrial-commercial registration.

B. No Mandatory Requirements for Maintaining Shareholder Register

As mentioned above, although Chinese law explicitly requires companies to maintain shareholder registers, this system has no enforcement in practice. Although Article 32 of the Company Law explicitly provides “limited liability companies shall maintain shareholder registers,” it does not detail supporting penalty mechanisms. Therefore, many problems arise due to legal gaps. For example, what legal risks and liabilities will companies face if they fail to maintain shareholder registers? Does the company bear corresponding liability if shareholder register content is inaccurate? What legal liability does the company face if shareholder registers are not updated in real-time to record shareholder information? Under such legal gaps, companies often more easily neglect the accuracy of shareholder register information, or even fail to maintain shareholder registers from the beginning. This is one of the main reasons for the large number of lawsuits in practice.

Additionally, legal provisions only list three specific items that shareholder registers should record, which is extremely insufficient for important internal company documents. Generally, after equity disputes arise, both parties present any evidence and materials that can prove their capital contribution status. However, in judicial practice, proving equity ownership solely through the shareholder register has insufficient evidentiary weight and cannot support a complete fact; additional evidence to corroborate the capital contribution fact is often needed to achieve the final evidentiary purpose. However, precisely because shareholder register content is insufficient and non-standardized, the effectiveness of shareholder registers themselves is in a relatively weak and unclear state.

At the same time, the law does not impose requirements on shareholder register format and procedures. Lacking clear legal requirements, this becomes the scope of company internal autonomy, such as the company independently formulating specific formats, selecting who records the shareholder register, establishing procedures for changing recorded shareholders, establishing procedures for correcting erroneous parts of the shareholder register, etc. However, this leads to a wide variety of situations in practice, greatly reducing universal applicability in legal practice. Therefore, legislators might consider whether to add and refine corresponding legal provisions to meet the true needs of legal practice, or consider whether to continue weakening the legal status of shareholder registers to avoid the awkward situation of having regulations but no obligation to follow them.

Furthermore, Article 20 of the Company Registration Regulations lists relevant documents that shall be submitted to the registration authority when applying for establishment of limited liability companies, but does not require companies to submit shareholder registers. Therefore, shareholder registers can be understood as internal company documents for self-governance, without external public notice function. Although limited liability companies have the obligation to maintain shareholder registers, they are purely for internal reference without actual legal effect, further weakening the shareholder register system and misunderstanding its fundamental purpose, thus evolving into the special legal status of shareholder registers in China’s company legal system.

C. Functional Capacity of China’s Shareholder Register Not Fully Utilized

The shareholder register system lacks linkage with the external public notice system, causing separation of substantive and formal requirements. According to Article 32, Paragraph 3 of the Company Law and Article 65 of the Civil Code General Provisions, when a legal person’s actual situation is inconsistent with registered matters, it cannot be asserted against bona fide counterparties. Through the above, China adopts a dual-publicity equity change model, where the internal shareholder register system and the industrial-commercial administrative department registration system coexist. It is generally believed that shareholder register changes serve as the effectiveness requirement, while industrial-commercial registration changes serve as the opposability requirement. However, in practice, although external industrial-commercial registration effectiveness has been confirmed as the opposability requirement for equity changes, the internal shareholder register as registration actually has no strong effectiveness.

First, after equity transfer, the equity assignee should be recorded in both the internal shareholder register and external company registration. However, because the effectiveness requirement for equity transfer behavior is not linked to internal and external registration, the above two types of registration cannot truly reflect the authentic equity ownership relationship. Therefore, whether the internal shareholder register system or external registration system, there is inherently the possibility of inauthentic equity ownership relationships. Second, the seemingly optional setup of the shareholder register system in procedures has caused the shareholder register system to long disconnect during implementation in China, lacking the ability to prove its objectivity, authenticity, and correctness, let alone proving the evidentiary weight of external registration effectiveness.