Nominal Director Claimed Not to Be the Legal Representative   [2018-03-01]

Court: Relevant registration items shall be eliminated as he didn’t participate in the daily operation management of the company nor is he a shareholderan employee

Mr. Shen demanded “I don’t want to be the legal representative of the defendant”, but the defendant insisted Mr. Shen must serve as the legal representative. Left with no choice, Mr. Shen brought an action to Changning district people’s court, requesting to change the registration with relevant departmentremove his name from the record of “legal representative”. Changning district people’s court supported Mr. Shen’s claims.

Through trial, the court found out that the defendant is an one-person company wholly owned by Mr. Cheng at the time of incorporation later, Mr. Cheng resigned as the company’s executive director, legal representativemanager,appointed Mr. Shen to be the executive director, legal representativemanager of the company. After that, the shareholders became Mr. Chenghis wife. As they had agreed that the positions were “nominal”, Mr. Shen signed on the relevant registration documentsbecame the legal representative of the company.

In the summer of 2016, Mr. Shen had labor disputes with the company resigned. Therefore, he proposed to resign the post as legal representative of the company. For cautions sake, he sent a letter of noticea lawyers letter to Mr. Cheng placed an announcement in a newspaper. but Mr. Cheng ignored. As the last resort, Mr. Shen filed a lawsuit to Changning district people’s court in april 2017.

Mr. Shen had good reasons: Mr. Cheng has been the actual controller operator of the defendant, while Shen never participated in the operation management of the defendant nor did he ever exercise the power of executive director manage as specified in the articles of association of the company receive remuneration money in any form from the company. According to the company law, the defendant should handle formalities for replacement registration as required by law.

The defendant didn’t agree to the plaintiff’s claims,put forward three reasons: First, according to the articles of association of the company, the plaintiff is the executive director of the company, so his nonfeasance in work will not exempt him from his obligations legal responsibilities. Second, as for the plaintiffs registration as the legal representative of the defendant, the plaintiff was well-informed, the contents were true the procedures were legal. Third, the plaintiffs claim for cancellation of administrative registration by administrative organ doesn’t fall under the jurisdiction of the court.

In october 2017, Changning district peoples court rendered the first-instance judgment: the defendant should go to the market supervision administration to eliminate the registration of Mr. Shen as the defendant’s legal representative. The defendant refused to accept the result and filed an appeal. Recently, the second-instance court made the final ruling, affirming the original judgment.

Through trial, Changning district peoples court held as follows. First, Mr. Cheng, who actually controls the defendant, made the plaintiff, who never participated in the daily operation management of the defendant, the nominal legal representative. This is obviously against the provisions of company law the legislation purpose. Second, from the perspective of rights and obligations, the plaintiff is neither a shareholder nor an employee of the defendant. The defendant has no proof to prove the plaintiff actually participated in the management of the defendant with the exception to his signature as legal representative on the application for company registration (filing), nor did he ever received remuneration from the defendant. Nevertheless, the plaintiff as the nominal legal representative of the defendant has to assume the responsibilities as the legal representative in accordance with law. This is obviously unfair. Third, in terms of legal relation, there is contractual enstrustment relation between the plaintiffthe defendant as the contract specifies that the plaintiff acts as the legal representative as entrusted by the defendant. According to the contract law of our country, the plaintiff has the right to request rescinding the contractual relation with the defendant. As the contract is rescinded, the defendant should eliminate the registration of Mr. Shen as the defendant’s legal representative with the registration authority.

1. General principles of the civil law of the people’s republic of china

Article 6 civil subjects engaging in civil activities shall follow the principles of fairness in determining reasonably the rightsobligations of all parties concerned.

2. Contract law of the peoples republic of china

Article 410 the principalthe agent may dissolve the entrustment contract at any time. If the dissolution of the contract by a party causes losses to the other party, the dissolving party shall compensate for the losses, except for reasons not attributable to that party.

3. Company law of the peoples republic of china

Article 13 the chairman of the board of directors, the executive directorthe manager shall, in accordance with the provisions of a company’s articles of association, serve as the legal representative of the company, which shall be registered according to law. Where the legal representative of a company is replaced, the company shall have such replacement registered.