Viewpoint... An analysis of the subject qualification of the parties in the derivative litigation of limited partners.
Published:
2022-11-04
Introduction Article 68 of the the People's Republic of China Partnership Act provides for a system of derivative litigation for limited partners, which gives limited partners the right to sue in their own name on the basis of the interests of the partnership if the executive partner neglects to exercise his rights. In the limited partner derivative litigation, the litigation participants generally include the plaintiff, the defendant and the partnership itself, but there are no clear legal provisions on how to determine the subject of the plaintiff, the scope of the defendant and the litigation status of the partnership itself, and there are also some disputes in the theoretical and judicial practice. The plaintiff's subject qualification of the derivative action of the 1. limited partner. According to section 68 of the the People's Republic of China Partnership Act, the subject of a limited partner derivative action is the limited partner. It is not controversial for a limited partner to bring a lawsuit as a plaintiff in his or her own name, but certain conditions must be met in order to be considered a qualified plaintiff. 1. Have direct limited partner status A limited partner derivative action is a lawsuit brought by a limited partner in his own name and for the benefit of the partnership. As the name implies, the limited partner who brings the lawsuit must be the limited partner whose interest belongs to the partnership, that is, the plaintiff shall be the property share holder of the partnership, and the holding shall be directly held. The party who indirectly holds the property share of the partnership is not a qualified plaintiff in the derivative action of the limited partner. In (2021) Yue 01 Min Zhong No. 26437 case, the Guangzhou Intermediate People's Court held that the case was a partnership contract dispute. According to the relevant provisions of the the People's Republic of China Partnership Law, when the rights and interests of the Shengzhan enterprise were infringed, the limited partners of the Shengzhan enterprise All partners can claim rights or file a lawsuit against the responsible partner; if Wu Xinfeng, the executive partner of the Shengzhan Enterprise, is lazy in exercising rights, the limited partner may urge him to exercise his rights or bring an action in the limited partner's own name for the benefit of the enterprise. According to the facts ascertained in the original trial, the five appellants in this case are limited partners of Wuhu Kangsheng Center, not limited partners of Shengzhan Enterprise, nor executive partners of Wuhu Kangsheng Center, and the five appellants are not qualified plaintiffs in this case. 2. The litigation process should continue to have limited partner status. As far as the subject of litigation is concerned, a limited partner who brings a limited partner derivative action should always have the status of a limited partner of the partnership until the end of the proceedings, and if he withuses from the partnership in the course of litigation, he will no longer have the basis of rights for the benefit of the partnership, that is, he will lose the qualification of the corresponding derivative subject. In addition, in practice, it is questioned whether the limited partner has not become a limited partner at the time of the infringement of the partnership, and then the new partner has become a limited partner of the partnership, whether this situation has an impact on the subject qualification of the limited partner to bring a derivative action. It is generally held that a limited partner who continues to have the status of a limited partner from the time of filing a lawsuit to the end of the procedure is a qualified plaintiff in a derivative action of a limited partner, so whether he or she has the status of a partner at the point of damage to the interests of the partnership does not affect the qualification of the limited partner as a subject of litigation. 3. Generally should be a "named" limited partner. As for whether the dormant limited partner can bring a derivative action, there is no clear stipulation in the current laws and regulations. However, referring to the shareholder representative action, there may be some obstacles for the dormant limited partner to bring a derivative action (only different identification of internal and external disputes of the partnership enterprise without registration, identification of non-qualified plaintiff subject in the case of dormant holding). Therefore, in the derivative action of the limited partner, the subject of a suitable plaintiff to bring a lawsuit shall generally be a limited partner who has been registered in industry and commerce. In the case of (2016) Beijing 0107 Minchu No. 14917, the Beijing Shijingshan District People's Court held that Article 66 of the Partnership Law stipulates: "The registration of a limited partnership shall contain the name or name of the limited partner. And the amount of capital contribution subscribed". This clause provides that when a limited partnership is registered, the limited partner's contribution must be registered. The registration of an enterprise has statutory external effect and is the criterion for determining whether it has the status of a limited partner of an enterprise. In this case, Song Qifeng invested in Hongxin Management Center and signed a Partnership Agreement, but Hongxin Management Center did not register Song Qifeng as a limited partner. Therefore, Song Qifeng is not a qualified plaintiff in a limited partner derivative action. In summary, in the absence of other special considerations, it is generally believed that as long as the limited partner status (directly holding a share of the partnership property and registered with the industry and commerce) continues from the time of the litigation to the end of the proceedings, the limited partner should be considered a qualified plaintiff to bring a derivative action. As to the proportion of the limited partner's share of the partnership property and whether the other limited partners of the partnership unanimously agree to file a derivative action, it does not affect the qualification of the limited partner as the subject of litigation, which is in line with the legislative intent of the the People's Republic of China Partnership Law and is recognized and followed in judicial practice. In the case of (2016) Supreme People's Court No. 756, the Supreme People's Court held that the relationship between Jiao and Li and Hexin Investment Center is not the relationship between creditors and debtors, but the relationship between limited partners and partnerships. The provisions of Article 73 of the the People's Republic of China Contract Law cannot be applied. The Beijing Hexinhengxuan Investment Center (Limited Partnership) Partnership Agreement stipulates that a limited partner has the right to urge him to exercise his rights or to file a lawsuit in his own name for the benefit of the enterprise when the executive partner is negligent in exercising his rights, and does not require the unanimous consent of all limited partners to file a lawsuit. Article 68, paragraph 2, paragraph 7, of the the People's Republic of China Partnership Law stipulates that when an executive partner neglects to exercise his rights, the limited partner urges him to exercise his rights or to bring a lawsuit in his own name for the benefit of the enterprise, which shall not be regarded as the execution of partnership affairs. This provision gives the limited partner of the partnership the right to sue on behalf of the partnership in his own name and does not limit his or her claim to the extent of his or her personal contribution, as long as the requirement is met for the benefit of the partnership. Jiao and Li filed a lawsuit on behalf of Hexin Investment Center, which not only complied with the agreement of the "Beijing Hexin Hengxuan Investment Center (Limited Partnership) Partnership Agreement", but also did not violate the provisions of the "the People's Republic of China Partnership Law", so they rejected Anhui Ruizhi Real Estate Development Co., Ltd.'s appeal that Jiao Jian and other limited partners were not qualified as the subject of litigation. The scope of the defendant's subject in the derivative action of the 2. limited partner. With regard to the subject of the defendant in a derivative action of a limited partner, the the People's Republic of China Partnership Law does not specifically provide for this, but under article 68 of the the People's Republic of China Partnership Law, the defendant in a derivative action of a limited partner shall be a party to the detriment of the interests of the partnership. It is generally believed that the defendants of limited partner derivative litigation should include two types, one is the third party outside the partnership, that is, the third party that has a creditor's rights and debts relationship with the partnership or infringes on the rights and interests of the partnership, and the other is the interested party within the partnership, that is, the partner who has a creditor's rights and debts relationship with the partnership or damages the interests of the partnership through improper behavior. In addition, it has been argued that the premise of a derivative action by a limited partner is that "the executive partner is negligent in exercising his rights", so the scope of the defendant in a derivative action does not include the executive partner, I .e. the general partner. The author believes that this view misinterpret the normative connotation of Article 68 of the the People's Republic of China Partnership Law. Limited partner derivative litigation is the right granted by law to limited partners to file litigation in their own name when the interests of the partnership are damaged due to the negligence of the executive partner. The executive partner is also a party potentially damaging the rights and interests of the partnership. If it is excluded from the scope of the defendant in derivative litigation, it would not be conducive to the protection of the rights and interests of the partnership and other partners, nor would it be consistent with the legislative intent of the limited partner derivative action. Litigation status of 3. partnerships In view of the fact that the partnership is the subject of the interest of the limited partner derivative action, and in order to find out the facts of the case, in judicial practice, the partnership is generally listed as the third party of the limited partner derivative action. However, the partnership participates in the derivative litigation of the limited partner as a third party, and there are still disputes and practical dilemmas in the theoretical circle: if the partnership is a third party with an independent claim, there is a conflict with the plaintiff, I .e. the limited partner, in the derivative litigation; if the partnership is a third party without an independent claim, it is contrary to the ownership of the derivative litigation interests. In addition, there are also views that the partnership should participate in the derivative proceedings as a witness, only to ascertain the facts of the case. Litigation status of 4. other partners Regarding the legal status of other partners of the partnership in the derivative litigation of limited partners, as far as judicial practice is concerned, there are mainly the following treatment methods: for other limited partners of the partnership, they have the right to participate in the litigation as the plaintiff together with the limited partner who filed the derivative litigation, or as a third party without independent claim; for the general partner of the partnership, because he does not have the status of limited partner, therefore, it can only participate in derivative actions as a third person without an independent claim, except where the limited partner brings a derivative action against the general partner as a defendant.
Introduction
Article 68 of the the People's Republic of China Partnership Act provides for a system of derivative litigation for limited partners, which gives limited partners the right to sue in their own name on the basis of the interests of the partnership if the executive partner neglects to exercise his rights. In the limited partner derivative litigation, the litigation participants generally include the plaintiff, the defendant and the partnership itself, but there are no clear legal provisions on how to determine the subject of the plaintiff, the scope of the defendant and the litigation status of the partnership itself, and there are also some disputes in the theoretical and judicial practice.
The plaintiff's subject qualification of the derivative action of the 1. limited partner.
According to section 68 of the the People's Republic of China Partnership Act, the subject of a limited partner derivative action is the limited partner. It is not controversial for a limited partner to bring a lawsuit as a plaintiff in his or her own name, but certain conditions must be met in order to be considered a qualified plaintiff.
1. Have direct limited partner status
A limited partner derivative action is a lawsuit brought by a limited partner in his own name and for the benefit of the partnership. As the name implies, the limited partner who brings the lawsuit must be the limited partner whose interest belongs to the partnership, that is, the plaintiff shall be the property share holder of the partnership, and the holding shall be directly held. The party who indirectly holds the property share of the partnership is not a qualified plaintiff in the derivative action of the limited partner.
In (2021) Yue 01 Min Zhong No. 26437 case, the Guangzhou Intermediate People's Court held that the case was a partnership contract dispute. According to the relevant provisions of the the People's Republic of China Partnership Law, when the rights and interests of the Shengzhan enterprise were infringed, the limited partners of the Shengzhan enterprise All partners can claim rights or file a lawsuit against the responsible partner; if Wu Xinfeng, the executive partner of the Shengzhan Enterprise, is lazy in exercising rights, the limited partner may urge him to exercise his rights or bring an action in the limited partner's own name for the benefit of the enterprise. According to the facts ascertained in the original trial, the five appellants in this case are limited partners of Wuhu Kangsheng Center, not limited partners of Shengzhan Enterprise, nor executive partners of Wuhu Kangsheng Center, and the five appellants are not qualified plaintiffs in this case.
2. The litigation process should continue to have limited partner status.
As far as the subject of litigation is concerned, a limited partner who brings a limited partner derivative action should always have the status of a limited partner of the partnership until the end of the proceedings, and if he withuses from the partnership in the course of litigation, he will no longer have the basis of rights for the benefit of the partnership, that is, he will lose the qualification of the corresponding derivative subject.
In addition, in practice, it is questioned whether the limited partner has not become a limited partner at the time of the infringement of the partnership, and then the new partner has become a limited partner of the partnership, whether this situation has an impact on the subject qualification of the limited partner to bring a derivative action. It is generally held that a limited partner who continues to have the status of a limited partner from the time of filing a lawsuit to the end of the procedure is a qualified plaintiff in a derivative action of a limited partner, so whether he or she has the status of a partner at the point of damage to the interests of the partnership does not affect the qualification of the limited partner as a subject of litigation.
3. Generally should be a "named" limited partner.
As for whether the dormant limited partner can bring a derivative action, there is no clear stipulation in the current laws and regulations. However, referring to the shareholder representative action, there may be some obstacles for the dormant limited partner to bring a derivative action (only different identification of internal and external disputes of the partnership enterprise without registration, identification of non-qualified plaintiff subject in the case of dormant holding). Therefore, in the derivative action of the limited partner, the subject of a suitable plaintiff to bring a lawsuit shall generally be a limited partner who has been registered in industry and commerce.
In the case of (2016) Beijing 0107 Minchu No. 14917, the Beijing Shijingshan District People's Court held that Article 66 of the Partnership Law stipulates: "The registration of a limited partnership shall contain the name or name of the limited partner. And the amount of capital contribution subscribed". This clause provides that when a limited partnership is registered, the limited partner's contribution must be registered. The registration of an enterprise has statutory external effect and is the criterion for determining whether it has the status of a limited partner of an enterprise. In this case, Song Qifeng invested in Hongxin Management Center and signed a Partnership Agreement, but Hongxin Management Center did not register Song Qifeng as a limited partner. Therefore, Song Qifeng is not a qualified plaintiff in a limited partner derivative action.
to sum up,In the absence of other special considerations, it is generally accepted that a limited partner should be found to be a qualified plaintiff in a derivative action as long as he or she continues to have the status of a limited partner (directly holding a share of the partnership property and being registered with the industry and commerce) from the time the action is brought to the end of the proceedings. As to the proportion of the limited partner's share of the partnership's property and whether the other limited partners of the partnership unanimously agree to file a derivative action, it does not affect the limited partner's qualification as the subject of litigation, which is in line with the legislative intent of the the People's Republic of China Partnership Law and is recognized and followed in judicial practice.
In the case of (2016) Supreme People's Court No. 756, the Supreme People's Court held that the relationship between Jiao and Li and Hexin Investment Center is not the relationship between creditors and debtors, but the relationship between limited partners and partnerships. The provisions of Article 73 of the the People's Republic of China Contract Law cannot be applied. The Beijing Hexinhengxuan Investment Center (Limited Partnership) Partnership Agreement stipulates that a limited partner has the right to urge him to exercise his rights or to file a lawsuit in his own name for the benefit of the enterprise when the executive partner is negligent in exercising his rights, and does not require the unanimous consent of all limited partners to file a lawsuit. Article 68, paragraph 2, paragraph 7, of the the People's Republic of China Partnership Law stipulates that when an executive partner neglects to exercise his rights, the limited partner urges him to exercise his rights or to bring a lawsuit in his own name for the benefit of the enterprise, which shall not be regarded as the execution of partnership affairs. This provision gives the limited partner of the partnership the right to sue on behalf of the partnership in his own name and does not limit his or her claim to the extent of his or her personal contribution, as long as the requirement is met for the benefit of the partnership. Jiao and Li filed a lawsuit on behalf of Hexin Investment Center, which not only complied with the agreement of the "Beijing Hexin Hengxuan Investment Center (Limited Partnership) Partnership Agreement", but also did not violate the provisions of the "the People's Republic of China Partnership Law", so they rejected Anhui Ruizhi Real Estate Development Co., Ltd.'s appeal that Jiao Jian and other limited partners were not qualified as the subject of litigation.
The scope of the defendant's subject in the derivative action of the 2. limited partner.
With regard to the subject of the defendant in a derivative action of a limited partner, the the People's Republic of China Partnership Law does not specifically provide for this, but under article 68 of the the People's Republic of China Partnership Law, the defendant in a derivative action of a limited partner shall be a party to the detriment of the interests of the partnership. It is generally believed that the defendants of limited partner derivative litigation should include two types, one is the third party outside the partnership, that is, the third party that has a creditor's rights and debts relationship with the partnership or infringes on the rights and interests of the partnership, and the other is the interested party within the partnership, that is, the partner who has a creditor's rights and debts relationship with the partnership or damages the interests of the partnership through improper behavior.
In addition, it has been argued that the premise of a derivative action by a limited partner is that "the executive partner is negligent in exercising his rights", so the scope of the defendant in a derivative action does not include the executive partner, I .e. the general partner. The author believes that this view misinterpret the normative connotation of Article 68 of the the People's Republic of China Partnership Law. Limited partner derivative litigation is the right granted by law to limited partners to file litigation in their own name when the interests of the partnership are damaged due to the negligence of the executive partner. The executive partner is also a party potentially damaging the rights and interests of the partnership. If it is excluded from the scope of the defendant in derivative litigation, it would not be conducive to the protection of the rights and interests of the partnership and other partners, nor would it be consistent with the legislative intent of the limited partner derivative action.
Litigation status of 3. partnerships
In view of the fact that the partnership is the subject of the interest of the limited partner derivative action, and in order to find out the facts of the case, in judicial practice, the partnership is generally listed as the third party of the limited partner derivative action.
However, the partnership participates in the derivative litigation of the limited partner as a third party, and there are still disputes and practical dilemmas in the theoretical circle: if the partnership is a third party with an independent claim, there is a conflict with the plaintiff, I .e. the limited partner, in the derivative litigation; if the partnership is a third party without an independent claim, it is contrary to the ownership of the derivative litigation interests. In addition, there are also views that the partnership should participate in the derivative proceedings as a witness, only to ascertain the facts of the case.
Litigation status of 4. other partners
Regarding the legal status of other partners of the partnership in the derivative litigation of limited partners, as far as judicial practice is concerned, there are mainly the following treatment methods: for other limited partners of the partnership, they have the right to participate in the litigation as the plaintiff together with the limited partner who filed the derivative litigation, or as a third party without independent claim; for the general partner of the partnership, because he does not have the status of limited partner, therefore, it can only participate in derivative actions as a third person without an independent claim, except where the limited partner brings a derivative action against the general partner as a defendant.
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