Silicon Valley Legal Bible（11）Equity Holding

Silicon Valley's treasure trove of forty-two sutras, a legal encyclopedia customized for founders. I am American lawyer Liu Xiaoxiao.

The concept of equity proxy is basically a question that every Chinese entrepreneur asks when starting a company in the United States. For example, "I'm still working in a big company, or I'm still working as a faculty member (Tenure) inside a school, and I don't want people to know that I'm a shareholder in this startup, so do you see any way that I can get my friend to hold it on behalf of me, so that my friend can be the explicit shareholder and I can be the implicit shareholder myself."

If you're worrying about this too, then a word of advice, don't worry about it because there's no such thing as equity nominee in the United States. Today we're going to talk about equity nominees.

1. Apparent shareholders, hidden shareholders?

In China, you can find out who the shareholders of each company are and what percentage of equity they account for on the industrial and commercial websites of various places. You can even see the parent-subsidiary company layer by layer in the software such as Tianyecha and Enterprisecha. But in the U.S., no such thing, the U.S. industry and commerce can not find these. Why? Because the United States does not have a share register, a company's shareholders who is the company's internal information, that is, all the shareholders are anonymous shareholders, naturally there is no such thing as shareholding.

I often tell people that the law is not math, and math has no borders, but the law still really has borders, and the gap between different countries is still very large. The situation of equity registration and disclosure of companies in each country is also different, we are accustomed to use the eye of the sky, enterprise check, may think that equity registration and disclosure is a very natural thing, but in fact in many countries is not so.

1.1 Registration + disclosure + free search

In fact, there are only a very few countries like China that require mandatory registration and public disclosure of a company's shareholder information, and you can find out who the shareholders of each company are for free. Among the mainstream countries, apart from China, there are only New Zealand and the UK.

For example, this is a screenshot of an industrial and commercial search in New Zealand, which clearly states who the shareholders are, how many shares they have, and what percentage they account for.

Take another look at the UK's

There is no need to talk about the business registration system in China, right? You should have seen it frequently.

1.2 Registration + public + paid search

There is a second type of country. Although it is mandatory to register and make public the information about the shareholders of a company, you have to pay for the search. Even if the search fee are not very expensive, this can still block a large number of people. Such countries and regions are Australia, the Cayman Islands, Hong Kong, Singapore, China Taiwan and so on.

But be careful, these pay to check the place tends to data update are not very timely, some to one or two months, some three or five months to update once, so the newly registered company in that often can not check.

It can be said to be expensive and slow!

1.3 Registration + Not Public + Not Searchable

Then look at the third kind of countries, that is, registered, but does not require public, this kind of country is currently only the Virgin Islands one. That is to say, the Virgin Islands, in their company registration department has a registration within the record, but how people outside can not know. This is why you often hear people say that the Virgin Islands has better privacy than the Cayman Islands company registration.

1.4 Non-registration + Non-disclosure + Non-searchable

The last type of country, that is, the shareholder information will not be registered, nor will it be made public, not to mention the query. This is mainly the three countries of the United States, Canada and Japan.

2. What can the U.S. industry and commerce find out?

So, if you can't find the shareholders, what can the U.S. industry and commerce find?

In the United States, most of the state business can only see the company's directors (Director) and executives CEO, CFO, Secretary of these positions, and some states can not even find these, can only see a company name, registration time, registered in these most basic information.

Shareholder information, in the United States in any state business registration can not be found.

We need to make it clear that we are talking about unlisted companies, because the United States listed companies will disclose more than 5% of the major shareholders, but after all, the vast majority of companies are unlisted companies, especially our frequent contact with the start-up companies.

So back to the concept of shareholding, why do we need to do shareholding under Chinese law? Is not because other people can easily find out who the shareholders of our company. Then the United States industrial and commercial information can not be found in the shareholders, so in the United States there is no need for equity holding.

And if you ask a U.S. attorney, they will also look at you with a puzzled face, what is "equity holding".

So when it comes to this, often there will be some with knowledge of U.S. law entrepreneurs ask me, the United States is not a concept called proxy it? This proxy is not equity proxy? This proxy and China's shareholding is not a one-to-one correspondence concept. Rather, proxy should be a temporary voting proxy, for example, the shareholders' meeting is going to be held, I don't have time, so I go to find someone else to vote in my place, this is called proxy, which is a far cry from the concept of equity proxy under Chinese law.

3. How can I prove that I am a shareholder of a U.S. company?

A question that naturally arises at this time is, since there is no shareholder information in the U.S. business registration, how can I prove that I am a shareholder of a company?

Some people find an online agent to register the company, each shareholder will have a horizontal print out of the hard cardboard, usually this paper is light yellow, or light green, above the drawing of an eagle, surrounded by a lace frame, and some people will be their company's so-called "seal" stamped on the shareholders' certificates. When I went to the law firm later, the lawyer would not give you this certificate and said that it was useless.

Indeed, in the United States, the shareholder certificate is a piece of waste paper, the official seal, go to Amazon to buy, 89 dollars a, want any shape, any pattern can be, it is also useless. The United States also does not exist such a crime as engraving an official seal.

Since I said earlier that the industry and commerce can not find my information, and the shareholders' certificate is useless, then how can I prove that I am a shareholder of the company?

A document can be, the shareholders contract, to be exact, the shareholders contract signed by both parties. What about forgery, you ask? Well, then you have to find a way to prove that the signature was forged. That's right, in the U.S., the only requirement for a legal document to be valid, and it's a final determination, is a signature, not a seal.

After saying this, some people may ask, "Then who do I give this signed document to? No need to hand over, there is no place to hand over, you go to hand over also no one to receive, they take on the line. That is, the company files a copy of the shareholders each file a copy.

What? Why? Didn't I just say, there's no share registry in the U.S.?

The first time I heard of this must be particularly shocking, calm down, calm down, go back and think about it.

Silicon Valley's treasure trove of forty-two chapters of scripture, a legal encyclopedia customized for founders. I'm U.S. attorney Liu Xiaoxiao, and we'll see you in the next installment.