Perspective | Analysis of the Legal Liabilities of Original Shareholders after Equity Transfer: Continuing Obligations and Exceptional Circumstances
Published:
2025-06-30
In commercial practice, equity transfer is often seen as a way for shareholders to "shed their skin," seemingly allowing them to escape responsibility after signing and completing the transfer. However, the scales of justice are never unbalanced by a mere agreement. Equity transfer is by no means the end of legal liabilities; the original shareholders still bear numerous ongoing obligations. This article will penetrate the surface of the transaction to reveal the boundaries of legal responsibilities that original shareholders cannot avoid after an equity transfer.
In commercial practice, equity transfer is often seen as a way for shareholders to "shed their skin," seemingly allowing them to relax after signing and completing the transfer. However, the scales of justice will never be unbalanced by a single agreement. Equity transfer is by no means the end of legal liability; the original shareholder still needs to bear many ongoing obligations. This article will penetrate the surface of the transaction to reveal the boundaries of legal responsibilities that original shareholders cannot avoid after equity transfer.
I. Ongoing Legal Responsibilities of Original Shareholders After Equity Transfer
1. Capital Contribution Responsibility: Guardian of Company Capital
Obligation to pay up unsubscribed capital contributions: According to Article 28 of the Company Law and Article 13 of the Supreme People's Court's Several Provisions on the Application of the Company Law of the People's Republic of China (III), shareholders shall pay up the subscribed capital contributions stipulated in the company's articles of association in full and on time. If there are unsubscribed capital contributions at the time of equity transfer, the original shareholder still bears the legal responsibility to make up the shortfall. Whether the transferee is aware or not does not affect the responsibility of the original shareholder; the company or creditors can directly claim from the original shareholder.
False capital contribution Joint and several liability: If the original shareholder has engaged in acts such as false capital contribution or withdrawal of capital contributions (Article 53 and 200 of the Company Law), even if the equity is transferred, they must still bear supplementary compensation liability for the portion of the company's debts that cannot be repaid within the scope of the unsubscribed capital, and the initiator shareholder may bear joint and several liability (Articles 13 and 14 of the Judicial Interpretation III of the Company Law). Supplementary compensation liability ，且发起人股东可能承担连带责任（《公司法司法解释三》第13、14条）。
Increased liability under the new Company Law: Article 88 of the new Company Law, which came into effect on July 1, 2024, stipulates that after the transfer of equity before the capital contribution deadline, the transferor shall bear supplementary liability for the transferee's failure to pay the capital contribution on time, and creditors may also require the original shareholder to fulfill the capital contribution obligation in advance. (Note: This clause only applies to equity transfers completed after July 1, 2024).
2. Liability for Damages: The Price of Wrongdoing
If the original shareholder, during their shareholding period, failed to fulfill their duty of loyalty or due diligence (such as Article 147 of the Company Law), and harmed the company's interests through related-party transactions, illegal guarantees, or embezzlement of company property, the company can still pursue their liability for damages even after the equity transfer (Articles 21, 148, and 149 of the Company Law).
3. Liability Under Specific Contracts: Binding Force of Agreements
If the original shareholder provided a guarantee for the company's debts in their personal name before the transfer (such as a guarantee contract), this guarantee liability is not waived due to the equity transfer. If the equity transfer agreement stipulates that the original shareholder makes commitments and guarantees regarding the company's specific historical debts, potential litigation, tax issues, etc., they must bear the corresponding responsibilities as agreed in the agreement.
4. Confidentiality Obligations and Non-Competition Restrictions: Continuation of Business Ethics
Based on the principle of good faith and credit in the Civil Code and possible confidentiality agreements and non-competition agreements, the original shareholder still has a confidentiality obligation regarding the company's trade secrets, core technologies, customer resources, etc., learned during their tenure. The confidentiality obligation is lifted only when both of the following conditions are met: ① The information has entered the public domain through legal channels; ② The right holder has not taken new confidentiality measures. If a non-competition clause is clearly stipulated in the transfer agreement, this clause must comply with the provisions of the Civil Code on contract validity, and the agreed period and scope must be reasonable. The original shareholder must abide by it; otherwise, they must bear the liability for breach of contract.
5. In specific circumstances Denial of legal person's personality Liability: Piercing the Veil
If the original shareholder abuses the independent status of the company's legal person and the shareholder's limited liability (such as commingling of property, excessive control, or significant capital deficiency) to seriously harm the interests of the company's creditors (Article 20 of the Company Law), even if the equity is transferred, creditors may still claim to "pierce the corporate veil" and require the original shareholder to bear joint and several liability for the company's debts. If the company has grounds for bankruptcy but has not applied for bankruptcy, creditors can claim that the original shareholder fulfills their capital contribution obligations in advance according to Article 6 of the Ninth Civil Judgment Guidelines; if the original shareholder transfers equity at an unreasonably low price after the company's debts arise, it may be deemed as malicious debt evasion, and they will still bear the responsibility.
II. Exceptions to Liability Exemption: Clarification of Legal Boundaries
1. Statutory Exemption from Capital Contribution Obligations: For the portion of capital contributions that have been paid in full and on time, the original shareholder is naturally exempt from liability after the transfer. If the transferee is aware of the original shareholder's capital contribution defects (unpaid or withdrawn) and still accepts the equity transfer, the company or other shareholders may require the transferee and the original shareholder to bear joint and several liability (Article 18 of the Judicial Interpretation III of the Company Law), but after the transferee actually fulfills the capital contribution obligation, they can claim compensation from the original shareholder. In this case, the original shareholder's direct liability to the company is not waived, but it may ultimately be borne by the transferee and then claimed back. The above clause applies to equity with an expired capital contribution deadline; equity with an unexpired capital contribution deadline is subject to Article 88 of the new Company Law after July 1, 2024.
2. Liability for Damages: If there is no evidence to prove that the original shareholder violated their duty of loyalty and due diligence during their shareholding period, causing damage to the company, there is no liability. If the company or new shareholder explicitly waives the liability that may arise from the original shareholder's specific historical actions in writing.
3. Contractual Liability: If the guarantee contract itself sets a liability period and it has expired. If the transfer agreement clearly stipulates that the transferee bears specific historical legacy issues, and this agreement does not violate mandatory legal provisions, does not harm the interests of creditors, and can be effectively performed, then the original shareholder can be exempted according to the agreement.
4. Confidentiality and Non-Competition Restrictions: Although confidentiality obligations are ongoing, they are not permanent; the obligation is lifted after the information enters the public domain and the right holder does not take new confidentiality measures. If a non-competition clause exceeds a reasonable period, area, or scope, or does not provide economic compensation, it may be deemed invalid, and the original shareholder no longer needs to comply.
5. Denial of Legal Person's Personality: The original shareholder did not engage in abusive behavior, or although there was improper behavior, it did not reach the level of "seriously harming the interests of creditors."
III. Practical Risk Warnings: Equity Transfer Is Not a Safe Haven
1. For the original shareholder: Do not harbor any wishful thinking of "selling and leaving". Before the transfer, be sure to complete the paid-in capital or make proper arrangements with the company, creditors, and transferee regarding unpaid capital contributions; comprehensively review personal guarantees and commitments; review and sign the transfer agreement to clarify the division of responsibilities; and assess the risks of historical behaviors.
2. For the transferee: Due diligence is crucial! Focus on verifying the capital contribution status of the target equity, contingent liabilities of the company, potential liabilities of the original shareholder, and the status of intellectual property rights, etc. In the agreement, clearly require the original shareholder to make commitments and guarantees for specific risks, and set up penalty clauses or compensation clauses.
3. For the company: Standardize the equity transfer process and promptly handle the change registration. Clearly understand the actual paid-in capital status of shareholders and urge the fulfillment of obligations. Actively assert rights when involving the responsibilities of the original shareholder.
4. For the creditor: Closely monitor the equity changes of the debtor company. If it is found that the original shareholder has made false capital contributions, withdrawn capital, or abused its legal status, etc., it can legally claim compensation from the original shareholder, unaffected by the equity transfer. According to Article 19 of "Several Provisions of the Supreme People's Court on Issues Concerning the Change and Addition of Parties in Civil Enforcement", the creditor can apply to add the original shareholder as the person subject to execution without separate litigation.
Conclusion
The life of the law lies in its implementation. The legal map of equity transfer is far more complex than it appears on the surface, and the shadow of the original shareholder's responsibility can exist for a long time under certain conditions. Whether it is the transferor seeking to exit, the transferee intending to enter, or the company pursuing stable operation, a clear definition of rights and responsibilities, complete legal documents, and rigorous due diligence are the cornerstones of avoiding risks and ensuring transaction security. True business wisdom lies not in how to escape responsibility, but in how to define boundaries and seek freedom within the framework of rules.
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