Is It Really Valid for a Foreigner to Hold Listed Company Equity Through a Nominee?

2026/10/14

The Price of Being a "Hidden Shareholder"

In 2005, Lin, a foreign national of Chinese descent, entered into a Share Subscription and Custody Agreement with his domestic friend Chen. Lin provided the funds and purchased shares in a certain company in Chen's name, with Chen acting as nominee holder and custodian. The company subsequently completed an IPO, and its share price rose substantially. Lin believed that he could finally reap the investment returns.

However, conflict soon erupted: Chen refused to cooperate in distributing the returns and even denied Lin's status as the actual contributor of funds. Lin sued in court, seeking confirmation that the returns belonged to him. The outcome was unexpected—the court held that the nominee holding agreement was invalid, and Lin was only able to recover his principal and part of the returns, with the remaining returns going to Chen.

This outcome overturns many people's understanding: if I clearly provided the money, why can I not recover all of it?

Why Was the Nominee Holding Agreement Held Invalid?

The court's core reasoning was this: equity in a listed company must be clear, and concealed nominee holdings are prohibited.

Under the Securities Law and the Administrative Measures for the Initial Public Offering and Listing of Stocks, an issuer's equity must be clear, there must be no major disputes over share ownership, and full and accurate disclosure must be made. Concealed nominee holdings distort information disclosure, affect related-party transaction review, insider trading regulation, and other basic market order, and harm the public interest of the investing public.

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Therefore, nominee holding of listed company equity not only violates departmental rules, but may also be held invalid on the ground that it violates public order and good morals. Once the agreement is invalid, the actual contributor of funds cannot automatically obtain shareholder status and may only assert, under contract law, the return of investment funds and distribution of returns.

Lawyer's View: Nominee Holding Is Risky; Enter with Caution.

First, nominee holding of listed company equity carries extremely high legal risk.
Where nominee holding involves securities, finance, insurance, and other public domains, courts tend to hold it invalid. The actual contributor of funds often cannot confirm shareholder status and may only assert a claim in the nature of a creditor's right to restitution.

Second, after invalidity, the distribution of returns is highly uncertain.
Courts generally give priority to the parties' prior agreement; where there is no agreement, they will exercise discretion based on the principle of fairness, taking into account factors such as each party's contribution, involvement, and risk. The actual contributor of funds may not necessarily receive all of the returns.

Third, advance prevention is far more important than post-dispute litigation.
If nominee holding is truly necessary, the agreement should expressly provide for the distribution ratio of returns after the agreement is declared invalid, so as to maximize one's own rights and interests. At the same time, key evidence such as funding vouchers and communication records should be preserved.

Fourth, the involvement of professional lawyers is crucial.
From the design of the nominee holding structure and the drafting of contractual terms to risk warnings and dispute resolution, lawyers can help parties assess feasibility, control risk, and seek the greatest possible benefit. Especially in litigation, lawyers can accurately grasp core issues such as contract validity and distribution of returns, and formulate effective strategies.

Conclusion

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Nominee holding is not as simple as "borrowing a name to buy a house." Nominee holding of listed company equity further involves the public interest and market order. Once a dispute arises, the actual contributor of funds often finds himself in a passive position. Rather than seeking recovery afterward, it is better to prevent the problem in advance. If you are considering or are already involved in equity nominee holding, it is advisable to consult a professional lawyer as early as possible, so as to avoid "losing on both counts."