First case related to new Foreign Investment Law: American shareholder wins shares back

Ke Jiayun
Court in Pudong grants request for shares to be returned after a new law took effect on January 1 which reduces limits on foreign investment, in contrast to the law it replaced. 
Ke Jiayun

An American shareholder won his shares back in a company dispute following the new Foreign Investment Law taking effect on January 1. It provides foreign investors with the same rights as Chinese people, the Pudong New Area People's Court said on Wednesday.

The case was the first related to new law to be heard by the court.

The court said, the plaintiff, a Chinese American called Carson, and two Chinese men, surnamed Zhang and Cheng, had decided to set up a trading company in Shanghai in November 2009. Cheng is the plaintiff's brother.

Carson invested 510,000 yuan (US$72,867) in the company while the other two put in 250,000 yuan and 240,000 yuan, respectively. The three signed a shares agreement on November 10. Since Carson was not allowed to establish a company with Chinese natural persons, the company was put under the names of Zhang and Cheng with his shares assigned to them. Zhang was registered as the company's owner. Although he couldn't hold shares, Carson participated in management and making decisions.

Later, Zhang's friendship with the brothers broke down and Carson decided to get back his shares from Zhang and give them to Cheng. However, Zhang rejected his request.

Carson filed a lawsuit demanding the return of his shares.

During the hearing, Zhang denied that Carson had invested in the company and said his money had just been for deals or debts.

He said even if Carson had made an investment, it should be considered invalid because Carson was an American and his setting up the company with Chinese natural persons violated the Sino-Foreign Equity Joint Ventures Law.

However, that legislation had been replaced by the Foreign Investment Law on January 1, which sets no such restriction on foreign investment. Accordingly, the court found in Carson's favor. 

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