Interpretation of the New Company Law ｜ Capital Contribution Obligations of Shareholders in Limited Liability Companies

Xinfa express

Regarding the capital contribution obligations of shareholders of a limited liability company, the Company Law of People’s Republic of China (PRC) has the following provisions:

Article 47 The registered capital of a limited liability company is the capital contribution subscribed by all shareholders registered with the company registration authority. The capital contribution subscribed by all shareholders shall be fully paid by shareholders within five years from the date of establishment of the company in accordance with the articles of association.

Where laws, administrative regulations and the State Council’s decision have other provisions on the paid-in registered capital, minimum registered capital and investment period of shareholders, those provisions shall prevail.

Article 48 Shareholders may make capital contributions in currency, or in kind, intellectual property rights, land use rights, stock rights, creditor’s rights and other non-monetary properties that can be valued in currency and can be transferred according to law. However, except for the property that cannot be used as capital contribution as stipulated by laws and administrative regulations.

Non-monetary property as capital contribution shall be appraised and verified, and the valuation shall not be overestimated or underestimated. Where laws and administrative regulations provide for evaluation and pricing, such provisions shall prevail.

Article 49 Shareholders shall pay their respective subscribed capital contributions in full and on time as stipulated in the Articles of Association.

Where shareholders make capital contributions in cash, they shall deposit their capital contributions in full into the account opened by the limited liability company in the bank; Where capital contribution is made by non-monetary property, the procedures for the transfer of property rights shall be handled according to law.

Where a shareholder fails to pay his capital contribution in full on time, he shall be liable for the losses caused to the company in addition to paying it in full.

Article 50 When a limited liability company is established, if a shareholder fails to actually contribute capital in accordance with the articles of association, or the actual value of the non-monetary property actually contributed is significantly lower than the subscribed capital contribution, other shareholders at the time of establishment shall be jointly and severally liable with the shareholder within the scope of insufficient capital contribution.

Article 52 If a shareholder fails to pay the capital contribution according to the date stipulated in the Articles of Association, and the company issues a written reminder for the capital contribution according to the first paragraph of the preceding article, the grace period for the capital contribution may be specified; The grace period shall not be less than 60 days from the date when the company issues the reminder. After the grace period expires, if the shareholder still fails to fulfill the obligation of capital contribution, the company may issue a notice of loss of rights to the shareholder upon the resolution of the board of directors, and the notice shall be issued in writing. Since the date of issuance of the notice, the shareholder has lost his unpaid equity.

The equity lost in accordance with the provisions of the preceding paragraph shall be transferred according to law, or the registered capital shall be reduced accordingly and the equity shall be cancelled; If it is not transferred or cancelled within six months, the other shareholders of the company shall pay the corresponding capital contribution in full in proportion to their capital contribution.

If a shareholder disagrees with the loss of rights, he shall bring a lawsuit to the people’s court within 30 days from the date of receiving the notice of loss of rights.

Article 54 If the company is unable to pay off the debts due, the company or the creditors with due creditor’s rights have the right to require the shareholders who have subscribed for the capital contribution but have not reached the capital contribution deadline to pay the capital contribution in advance.

Article 51 After the establishment of a limited liability company, the board of directors shall check the capital contribution of the shareholders. If it is found that the shareholders fail to pay the capital contribution stipulated in the articles of association in full and on time, the company shall issue a written reminder to the shareholders to make a capital contribution.

If the company fails to fulfill the obligations stipulated in the preceding paragraph in time and causes losses to the company, the responsible directors shall be liable for compensation.

Article 88 Where a shareholder transfers the equity that has subscribed for capital contribution but has not yet reached the deadline for capital contribution, the transferee shall bear the obligation to pay the capital contribution; If the transferee fails to pay the capital contribution in full and on time, the transferor shall bear supplementary responsibilities for the capital contribution that the transferee fails to pay on time.

If a shareholder fails to pay the capital contribution according to the date stipulated in the Articles of Association or the actual price of the non-monetary property as capital contribution is significantly lower than the subscribed capital contribution, the transferor and transferee shall bear joint liability within the scope of insufficient capital contribution; If the transferee does not know and should not know of the above situation, the transferor shall bear the responsibility.

Interpretation of new law

As an important subject of market economy in modern society, a company is liable for its debts with all its property, and shareholders’ contribution to the company belongs to the category of company property, which is the basic connotation of limited liability and the cornerstone of modern company system. For this reason, the new company law has improved the provisions of shareholders’ capital contribution obligations to the company, including:

First, optimize the provisions of capital contribution obligations: add the provision that the company’s subscribed capital contribution should be paid in full within five years, curb the problem that the shareholders’ subscription period is long and the subscription amount is too high under the capital subscription system, and maintain the company’s financial stability; Increasing equity and creditor’s rights can also be used as the capital contribution form of non-monetary property, which improves the financing flexibility of the company; The obligation of verification and reminder of the company’s board of directors is added, which comes from the diligence obligation of directors, and draws on the provisions of Article 17 of Judicial Interpretation III of the Company Law to expand the above obligations of directors.

Second, improve the system of capital contribution obligation: 1. Accelerated maturity system of capital contribution. Both the company and the due creditors have the right to request an accelerated maturity, in which the amount of capital contribution requested by the due creditors can only be limited to the due creditor’s rights, but the company is not limited by the amount of the due creditor’s rights when making this request. 2. The system of shareholders’ loss of rights. The system of shareholders’ loss of rights is a supplement to the system of shareholders’ expulsion stipulated in Judicial Interpretation III of Company Law. The applicable conditions are strictly limited, which are limited to "the shareholder fails to pay the capital contribution according to the date stipulated in the articles of association", and partial loss of rights is allowed. As for the situation that the capital contribution is withdrawn and the actual price of non-monetary property as capital contribution is significantly lower than the subscribed capital contribution, the shareholder loss of rights system is not applicable. There are specific norms for the procedure of loss of rights. First, it must be verified by the board of directors, then it must be called by the board of directors, and finally the board of directors issues a written notice of loss of rights, so that the shareholder loses his unpaid equity.

Iii. Liability for breach of capital contribution obligations: 1. Liability of shareholders themselves. In addition to making up the capital contribution, the shareholders themselves should also be liable for the losses caused to the company, such as the extra cost paid by the company to find new financing. Although the new company law has deleted the stipulation that the shareholders themselves should bear the liability for breach of contract to other shareholders, it does not mean that the shareholders themselves will not bear the liability for breach of contract to other shareholders, but will be agreed by the agreement between shareholders, and the new company law no longer makes special provisions on this. In addition, in the case of shareholders losing their rights, shareholders themselves no longer need to make supplementary contributions to the company, but they still need to be liable for the losses caused to the company. 2. Joint liability of other shareholders. There is no time limit for the joint liability of shareholders at the time of establishment, and the situation of joint liability has expanded from the failure to make full capital contribution as stipulated in the original company law to the failure to make capital contribution on schedule. 3. Liability of directors. Because the director’s duty of diligence is personal, but the director’s main body of action in the company law is the board of directors. Therefore, although the new company law stipulates that the board of directors has the obligation of verification and reminder, the main body responsible for compensation is still the individual director, and the scope of compensation is limited to the losses caused to the company by the failure to fulfill the obligation of verification and reminder, not including the part made up by shareholders. 4. Supplementary liability of the equity transferor. The new company law has absorbed the rules of liability for capital contribution after the transfer of defective capital contribution equity specified in Judicial Interpretation III of the Company Law, and added the provision that it should still bear the liability for capital contribution after the transfer of unexpired equity.

The above-mentioned provisions and systems of the new company law on the newly added obligations of shareholders for capital contribution have laid a legal foundation for optimizing the business environment, promoting the prosperity and development of the capital market, significantly optimizing the corporate governance structure and the market economy system, and also improving the modern enterprise system with China characteristics, promoting entrepreneurship, maintaining the social and economic system, and promoting the development of the socialist market economy.

(Image from the Internet)

Author: Song Xinling of the Second People’s Court

Original title: Interpretation of the New Company Law | Capital Contribution Obligations of Shareholders of Limited Liability Companies

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