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Preface

On 29 December 2023, China rolled out the latest revision to the *Company Law of the People's Republic of China*. One of the key amendments explicitly stipulates that shareholders of limited liability companies shall fully pay up their subscribed capital contributions within five years on the basis of retaining the registered capital subscription system, which is regarded as a measure to tighten restrictions on the time limit for shareholders' capital contributions. In fact, since 2014, China has confirmed the registered capital subscription registration system for limited liability companies through amending the Company Law. The adoption of the subscription system has greatly streamlined registration procedures and made company incorporation much easier. However, in actual registration practices, as information systems were not sound in earlier years, not all administrations for industry and commerce applied the risk prevention measure of real-name registration when handling company registration applications, which created conditions for the occurrence of fraudulent registration under false identities.

Where a person serves as the legal representative of a company, once the company is included in the List of Dishonest Persons Subject to Enforcement, the information recorded and publicized on the aforesaid list shall include the name of the legal representative. Where the person subject to enforcement is an entity, after consumption restriction measures are imposed thereon, its legal representative shall not conduct any high-consumption act or any consumption act that is not necessary for daily life or work operation.

For fraudulently registered shareholders, the risks are extremely high, as subscribed capital contribution does not mean exemption from the obligation to pay such contributions. In the event of the expiration of the capital contribution period, bankruptcy of the company or other similar circumstances, shareholders who have not fully made their paid-in capital contributions may be held liable for making contributions as scheduled, bearing joint and several liability for the capital contributions of other shareholders, and accepting the accelerated maturity of their capital contribution obligations. Where the company's assets are insufficient to repay its external debts, the fraudulently registered shareholder shall bear supplementary repayment liability, or even joint and several liability, within the scope of their subscribed capital contributions.

Therefore, how to annul fraudulently obtained impostor registration has become a key concern for victims of impostor registration. This article, centering on a real consultation case, carries out analysis from multiple perspectives, with a view to facilitating the remedy of rights for the aforesaid victims.

Background Summary

Recently, the author accepted a legal consultation concerning a case where an individual's identity was fraudulently used to be registered as the legal representative and shareholder of a company.

According to the statement of Client A, without his knowledge, his former colleague B, as the actual controller, incorporated a limited liability company C with a registered capital of RMB 10 million. A was registered as the executive director, appointed as the legal representative of the company and held 30% of its equity interests, and the aforesaid registered capital has not been fully paid-in to date. At present, Company C is in the status of having its business license revoked by the Market Supervision and Administration Bureau, on the grounds that it has not commenced business for more than six months without justifiable reasons after incorporation, or has suspended business of its own accord for more than six consecutive months after commencing business. Currently, A has lost contact with B, and A's claim is to cease to serve as the executive director, legal representative and shareholder of the company.

Normally, pursuant to the provisions of Paragraph 2 of Article 37 of the *Company Law of the People's Republic of China*, the shareholders' meeting of a company may adopt a resolution to remove the chairman of the board of directors or the executive director of the company from office. Pursuant to the provisions of Item 9 of Article 46 of the *Company Law*, the board of directors of a company may decide to dismiss the manager of the company. After the legal representative of the company is removed from the relevant post, the company shall amend its articles of association and file an application with the registration authority for modification of the company's legal representative. After a shareholder of the company transfers its held equity interests, the company shall file an application with the registration authority for registration of the new shareholder(s) and their respective shareholding ratios. However, under the circumstance that the corporate governance bodies of a company become invalid, or in the case of deliberate impersonation registration, it is obvious that the aforesaid remedies are completely ineffective. Then, apart from the aforesaid channels, are there any other lawful and effective channels available?

I. How to Remove the Registration of a Company's Legal Representative Registered Under a Fraudulently Used Identity

(I) Legal Relationship between the Legal Representative of a Company and the Company

Pursuant to Article 13 of the *Company Law of the People's Republic of China*: The legal representative of a company shall, in accordance with the provisions of the company's articles of association, be assumed by the chairman of the board of directors, the executive director or the manager, and shall be registered in accordance with the law. Where the legal representative of a company is altered, the modification registration shall be completed in accordance with relevant provisions.

From the perspective of legal relationships, an entrustment legal relationship exists between the chairman of the board of directors, executive director or general manager of a company and the company. Pursuant to Article 933 of China's Civil Code, either the principal or the trustee may rescind the entrustment contract at any time.

(II) Remedy Channels for Persons Fraudulently Registered as Legal Representatives

The legal representative of a company may deliver a written document on entrustment termination to the company, resign from the post of chairman of the board of directors, executive director or manager of the company, and request to be removed from the post of the company's legal representative.

However, it shall be noted that resignation from the office of Chairman of the Board of Directors, Executive Director or Manager of a company does not automatically lead to the removal of the industrial and commercial registration of the company's Legal Representative, which is still subject to a registration alteration application filed by the company. That is, "An individual who serves as the Legal Representative of a company, as an agent, has the right to resign from the entrustment, and the mandate relationship is terminated accordingly. However, the legal effect of the termination of the mandate relationship does not automatically result in the removal of the aforesaid registration."

Where the company still neglects to complete the modification of industrial and commercial registration, thereby causing losses to the aggrieved party, such party shall have the right to claim compensation for the aforesaid losses from the company.

It is worth noting that Paragraphs 2 and 3 of Article 10 of the Company Law of China, which will come into force on July 1, 2024, stipulate that: Where a director or manager serving as the legal representative resigns, he or she shall be deemed to have resigned from the post of legal representative concurrently. Where the legal representative resigns, the company shall determine a new legal representative within 30 days as of the date of such resignation.

II. How to Cancel the Registration of a Company's Shareholder Status

(I) Apply for revocation of impersonation registration, or initiate administrative litigation against the registration authority

On June 28, 2019, the State Administration for Market Regulation issued the *Guiding Opinions of the State Administration for Market Regulation on Revoking Company Registrations Obtained by Fraudulently Using Other Persons' Identity Information* (Guo Shi Jian Xin [2019] No. 128). Pursuant to the provisions of Article 1 of the aforesaid Guiding Opinions, the person whose identity is fraudulently used may submit a claim to the registration authority for revocation of the fraudulently obtained registration, which shall be handled by the current registration authority. After receiving the application for revocation of the fraudulently obtained registration, the registration authority shall verify the revocation application signed by the person whose identity is fraudulently used and the copy of his/her identity document (where the person appears in person, the original document shall be verified). In the meantime, the registration authority may also take other evidence into comprehensive consideration. For example, the person whose identity is fraudulently used may provide the police receipt for identity document loss reporting, identity document loss announcement, bank records of identity document loss reporting, handwriting appraisal report issued by a professional institution, etc. The applicant shall provide evidence capable of proving the fraudulent use of identity as much as possible to assist the registration authority in making the determination.

Generally, where conclusive evidence is presented, the registration authority shall handle the case in accordance with the prescribed procedures and give timely feedback on the relevant disposition results. Of course, if the registration authority refuses to make a revocation decision, the applicant may file an administrative lawsuit against the registration authority as the defendant.

(II) Instituting a civil action against the company for confirmation of the non-existence of shareholder qualification

Pursuant to the explicit provisions of Article 22 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)*, where a dispute over the ownership of equity interests arises between parties, and one party requests the people's court to confirm its entitlement to the equity interests, it shall prove any of the following facts: 1. It has made or subscribed to capital contributions to the company in accordance with the law, and such act does not violate the mandatory provisions of laws and regulations; 2. It has accepted a transfer of or derivatively acquired the equity interests of the company through other forms, and such act does not violate the mandatory provisions of laws and regulations.

In addition, according to the interpretation of the cause of action of dispute over confirmation of shareholder qualification in *Understanding and Application of the Provisions of the Supreme People's Court on the Causes of Action for Civil Cases*, such disputes refer to disputes arising from controversies between shareholders or between shareholders and the company concerning the existence of shareholder qualification, specific shareholding amount, shareholding ratio and other relevant matters.

Judging from the above two documents, the action for confirmation of shareholder qualification covers the ascertainment of the existence or non-existence of shareholder status, namely affirmative declaratory actions and negative declaratory actions. A fraudulently impersonated shareholder may institute a negative declaratory action for confirmation of shareholder qualification against the company as the defendant, requiring the company to apply to the registration authority for alteration of its shareholder status registration. In judicial practice, in addition to examining the authenticity of company registration materials, the people's court shall also review circumstances including the relationship between the "fraudulently impersonated shareholder" and the company or the company's actual controller, whether the said person has relevant knowledge or acquiescence, and the operating status of the company, so as to strike a balance between the protection of the private rights of the "fraudulently impersonated shareholder" and the erga omnes effect of company registration.

(III) File an action for tort against persons who fraudulently use others' information

The civil action filed against those who fraudulently use others' information constitutes an action in tort.

Pursuant to Article 1014 of the *Civil Code of the People's Republic of China*, no organization or individual may infringe upon other persons' right to personal name or right to entity name by means of interference, usurpation, impersonation or the like. Accordingly, the impersonated party may file a tort action under the cause of action of "dispute over right to personal name", and request the impersonator to cease the infringement upon the impersonated party's rights such as the right to personal name.

In practice, where the impostor is verified to be the actual controller of the company, the person whose identity has been fraudulently used may, after obtaining a favorable judgment, further request the party liable for the infringement to assist in completing the formalities for the alteration of industrial and commercial registration.

(IV) Initiate the criminal case reporting procedure against persons who fraudulently use others' information

China's Criminal Law stipulates the crimes of infringing upon citizens' personal information, forging, altering or trading identity documents, and using false identity documents or stealing others' identity documents for use. Where the person who fraudulently uses another person's identity is suspected of the aforesaid crimes, the shareholder whose identity has been fraudulently used may file a report with the public security organ and request that the criminal liability of the said person be pursued.

However, the difficulty lies in the fact that under most circumstances, the identity of the person whose identity is fraudulently misappropriated cannot be ascertained prior to the investigation by public security organs. Therefore, before the case is cracked, the victim of identity misappropriation may only resort to other remedial measures.

(V) Filing actions for company dissolution and/or compulsory liquidation / bankruptcy liquidation

Filing a lawsuit for company dissolution, compulsory liquidation or bankruptcy liquidation also constitutes a viable solution. However, it is discussed as the last resort for the reason that once such lawsuit is filed, it shall be deemed as a self-admission by the party concerned that the company's business registration materials have been consented to or confirmed by the party, and that the party is the legally registered shareholder of the company. Therefore, the precondition for initiating a lawsuit for company dissolution, compulsory liquidation or bankruptcy liquidation is that the person whose identity is fraudulently used still fails to obtain cancellation of the registration after exhausting all aforementioned remedies. This remedy is designed to resolve the long-standing deadlock where the aforesaid problems remain unsolved, so as to put an end to the persistent unstable status of the rights and obligations of both the company and the aforesaid person whose identity is fraudulently used as soon as possible. After the dissolution or liquidation of the company, the ongoing harm inflicted by such uncertainty on the person whose identity is fraudulently used can at least be mitigated. In other words, where the company has not assumed any obligations to external third parties, timely filing of a lawsuit for company dissolution, compulsory liquidation and/or bankruptcy liquidation is also a feasible option.

In the present case, there is no circumstance where the consulting party's certificates are lost. The imposter is a former colleague of the consulting party, rather than a completely unknown third party. The consulting party failed to raise any objection for a considerably long period after their identity was fraudulently used, and their shareholding ratio is not sufficient to convene a shareholders' meeting to modify the company's registration information. Based on a comprehensive consideration of all the aforementioned circumstances, the final assessment concludes that this approach is an available option.

Where the business license of a company has been revoked, it satisfies the statutory ground for company dissolution prescribed in Article 180, Paragraph 1, Item (4) of the *Company Law of the People's Republic of China*. Under such circumstance, it is unnecessary to initiate a lawsuit for company dissolution again. In addition, pursuant to the provisions of Article 183 of the Company Law: Where a company is dissolved in accordance with the provisions of Item (1), Item (2), Item (4) and Item (5) of Article 180 hereof, a liquidation group shall be formed within 15 days from the date when the grounds for dissolution arise to commence liquidation. Under such circumstance, if the shareholders of the company fail to form a liquidation group within 15 days, the shareholders, directors or other interested parties of the company may apply to the people's court for appointing a liquidation group to conduct liquidation pursuant to the provisions of Article 7, Paragraph 2 of *Interpretation II of the Supreme People's Court on Several Issues Concerning the Application of the Company Law of the People's Republic of China*. An application for cancellation of registration shall be filed after the liquidation of the dissolved company is completed in accordance with the law.

It should be noted that, whether it is a lawsuit for dissolution, compulsory liquidation or bankruptcy liquidation, the applicant shall pay litigation fees in accordance with the acceptance fee standards for property-related cases when filing the application, and the proceedings will last for a relatively long period. This is also a key factor to be considered by the party whose identity is fraudulently used when safeguarding their legitimate rights and interests.

Note: The image above is from Chongqing Bankruptcy Court.

Conclusion:

The defendant whose identity is fraudulently used for registration as a legal representative or shareholder may assert their rights through administrative, civil and criminal remedy channels respectively in light of specific circumstances. As the circumstances of each fraudulent registration by false identity vary, the applicable legal remedy channels adopted are also different on a case-by-case basis. Readers are welcome to consult, discuss and exchange views on relevant issues.