Civil and Commercial Perspective | The Legal Red Line and Pitfalls of Shareholder Capital Contribution Liability
Published:
2025-07-03
The core of shareholder responsibility lies in fulfilling the obligation to contribute capital and adhering to the principle of limited liability. In principle, if a company has paid in full its registered capital and has not engaged in illegal activities such as capital withdrawal, shareholders will not be added as persons subject to enforcement and subject to high consumption restrictions due to company debts. However, under certain circumstances, limited liability may be breached, resulting in supplementary or joint and several liability.
Abstract: The core of shareholder responsibility lies in fulfilling the obligation to contribute capital and adhering to the principle of limited liability. In principle, if a company has paid in full its registered capital and has not engaged in illegal acts such as capital withdrawal, shareholders will not be added as persons subject to enforcement and subject to high consumption restrictions due to company debts. However, in specific circumstances, limited liability may be breached, and shareholders may bear supplementary or joint and several liability.
Keywords: Paid-in capital, Advance payment, Supplementary or joint and several liability
I. Statutory Nature of Capital Contribution Obligation
(I) Legal Basis
According to Article 49 of the Company Law of the People's Republic of China (2023 Revision), if a shareholder fails to pay the capital contribution in full and on time, in addition to making up the shortfall, they must also bear compensation liability. Article 13 of the Supreme People's Court's Provisions on the Application of the Company Law of the People's Republic of China (III) (2020 Revision) clearly states that shareholders who fail to fulfill their capital contribution obligations shall bear supplementary compensation liability for the portion of the company's debts that cannot be repaid, and initiators shall bear joint and several liability.
(II) Judicial Cases
Through searching the China Judgment Documents Online, the author found that in the case of a certain company, etc., v. Zhao Mou 2, an objection lawsuit to add and change the person subject to enforcement, (2024) Jing 03 Min Zhong 488, a civil judgment issued by the Beijing Third Intermediate People's Court held that:
Under the registered capital subscription system, shareholders legally enjoy the benefit of time. Creditors have no right to request shareholders who have not yet reached the capital contribution deadline to bear supplementary compensation liability for the company's unrepaid debts within the scope of unpaid capital on the grounds that the company cannot repay its due debts. However, this does not apply to cases where the company is the person subject to enforcement, the people's court has exhausted enforcement measures and there are no assets available for enforcement, and there are grounds for bankruptcy, except for cases where bankruptcy is not applied for. The existence of grounds for bankruptcy means that the provisions of Article 2, Paragraph 1 of the Enterprise Bankruptcy Law of the People's Republic of China are met, namely, "an enterprise legal person is unable to repay its due debts, and its assets are insufficient to repay its debts or clearly lacks the ability to repay its debts." Article 2 of the Supreme People's Court's Provisions on the Application of the Enterprise Bankruptcy Law of the People's Republic of China (I) stipulates that the people's court shall determine that the debtor is unable to repay its due debts if the following circumstances exist simultaneously: (1) the creditor-debtor relationship is legally established; (2) the debt repayment deadline has expired; (3) the debtor has not fully repaid the debt. Article 3 stipulates that if the debtor's balance sheet, or audit report, asset appraisal report, etc., shows that its total assets are insufficient to repay all liabilities, the people's court shall determine that the debtor's assets are insufficient to repay all liabilities, unless there is contrary evidence sufficient to prove debt repayment; (2) the legal representative's whereabouts are unknown and no other person is responsible for managing the debtor's assets to repay all liabilities. Article 4 stipulates that even if the debtor's book assets are greater than its liabilities, if any of the following circumstances exist, the people's court shall determine that it clearly lacks the ability to repay its debts: (1) due to serious lack of funds or the inability to realize property, it is unable to repay its debts; (3) after forced execution by the people's court, it is unable to repay its debts; (4) long-term losses and difficulties in turning losses into profits, making it unable to repay its debts; (5) other circumstances that lead to the debtor's loss of repayment ability. Specifically, in this case, Zhao Mou 2 has applied for forced execution. After checking, the company has no real estate and no bank deposits, and the executing court has terminated the execution proceedings. Because the company has no assets available for execution, it is unable to repay its debts through forced execution. The above circumstances meet the circumstances stipulated in Article 2 of the Supreme People's Court's Provisions on the Application of the Enterprise Bankruptcy Law of the People's Republic of China (I), and it can be determined that the company clearly lacks the ability to repay its debts. For the shareholders of the company, although the capital contribution deadline has not yet arrived, because the company is the person subject to enforcement, the people's court has exhausted enforcement measures and there are no assets available for enforcement, and there are grounds for bankruptcy, but bankruptcy is not applied for, they should bear supplementary compensation liability for the company's unrepaid debts within the scope of unpaid capital. Therefore, Zhao Mou 2's application to add Song Mou 1 as the person subject to enforcement and bear responsibility within the scope of his unpaid capital is legally justified, and the first-instance court's determination is correct, and this court upholds it.
(III) Accelerated Maturity and Responsibility Allocation after Equity Transfer
Article 54 of the Company Law of the People's Republic of China (2023 Revision) [Shareholders Early Payment of Capital Contribution If a company is unable to repay its due debts, the company or the creditor of the due debt has the right to require shareholders who have subscribed for capital contributions but have not yet reached the capital contribution deadline to pay the capital contributions in advance. The Company Law introduces Accelerated Maturity System under the subscription system, stipulating that shareholders must fulfill their capital contribution obligations in advance under specific circumstances.
Article 88 of the Company Law of the People's Republic of China (2023 Revision) [Capital Contribution Liability in Equity Transfer] Paragraph 1: "If a shareholder transfers equity that has been subscribed for but has not yet reached the capital contribution deadline, 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 liability for the capital contribution not paid on time by the transferee." In practice, if the debt in question occurred before the equity transfer, and no audit was conducted on the target company at the time of equity transfer, the shareholder's equity transfer may constitute an act of intentionally evading shareholder responsibility. Based on this, the transferee shareholder should bear supplementary liability for the supplementary compensation liability to the creditor within the scope of their respective equity transfers. For example: Shareholder Zhang San has paid in capital of 4 million yuan, so he should bear supplementary liability for the payment obligation that creditor Li Si should bear due to supplementary compensation liability within the scope of 11.3 million yuan (15.3 million yuan - 4 million yuan) of unpaid capital; Wang Wu should bear supplementary liability for the payment obligation that Li Si should bear due to supplementary compensation liability within the scope of 7.2 million yuan of unpaid capital, and so on. Therefore, if a shareholder transfers equity before the subscription period expires, the original shareholder and the new shareholder may jointly bear the burden of proof of capital contribution, and the specific determination needs to be combined with whether the transfer behavior harms the interests of creditors.
II. Exceptions to Shareholder Liability
(I) Exemption from Liability after Paid-in Capital
After shareholders have completed their paid-in capital contributions, they are generally not required to bear joint and several liability for the company's debts. If shareholders engage in capital withdrawal (such as transferring already paid-in funds to their personal accounts), they must bear supplementary liability within the scope of the withdrawal. Theoretically, once shareholders have completed their paid-in capital contributions, they have fulfilled their basic obligations to the company, and creditors can generally only claim rights from the debtor company.
(II) Nature of Shareholder Advances
Funds voluntarily advanced by shareholders constitute a claim against the company, not the fulfillment of the capital contribution obligation. Such advances can be claimed through the company's liquidation process, but this does not equate to exemption from other legal liabilities of shareholders. Advance payment must be confirmed through legal procedures; otherwise, it is not considered fulfillment of the capital contribution obligation.
(III) Special Circumstances Where Shareholders Are Added as Persons Subject to Enforcement
If a company engages in capital withdrawal or malicious asset transfer, according to Article 17 of the Supreme People's Court's Provisions on Several Issues Concerning the Change and Addition of Parties in Civil Enforcement (2020 Revision), the creditor may apply to add the relevant shareholders as the person subject to enforcement, and the shareholders shall bear responsibility within the scope of unreal capital contribution or capital withdrawal. In practice, if the company has no assets available for execution and meets the conditions for bankruptcy, even if the shareholder's capital contribution period has not expired, the court may still determine that the capital contribution obligation has accelerated maturity.
III. Risk Prevention Suggestions
1. Distinguish between capital contribution and debt
Shareholders should retain written proof of funds advanced, clarifying that the nature is a loan rather than a capital contribution, to avoid confusion with actual paid-in capital.
2. Avoid suspicion of capital withdrawal
Actually paid-in funds should be strictly used for company operations, avoiding large-scale transfers to related parties in a short period. When a husband and wife shareholder jointly control the company, capital withdrawal by one party may be deemed as assistance by the other party.
3. Risk isolation of legal representative
It is recommended that shareholders who are not actual controllers avoid serving as legal representatives, or sign a written exemption agreement with the company.
IV. Supplementary Liability in Special Circumstances
1. Performance of liquidation obligations 的履行
If the company is ultimately dissolved, shareholders must conduct liquidation according to the law. According to Article 18 of the Supreme People's Court's Provisions on Several Issues Concerning the Application of the Company Law of the People's Republic of China (II) (2020 Revision), shareholders may bear joint and several liability if they fail to liquidate, resulting in the loss of property.
2. Exception for accelerated maturity of capital contribution
When a company is subject to forced execution and has no assets available for execution, even if the shareholders have completed the actual payment, if there are other illegal acts (such as capital withdrawal), they may still be required to bear supplementary liability.
In summary, if the company's registered capital has been actually paid and there are no illegal acts such as capital withdrawal, the personal property of the shareholders is generally not implicated by the company's debts; however, the legal representative may be subject to restrictions on high consumption due to the company, and the liquidation liability and supplementary compensation liability in special circumstances should be guarded against.
Legal Basis
1. Company Law of the People's Republic of China (2023 Revision)
Article 54 [Shareholders' advance payment of capital contribution] If a company is unable to repay its due debts, the company or the creditor of the due debt has the right to require shareholders who have subscribed for capital contributions but have not yet reached the capital contribution deadline to pay the capital contributions in advance. That is, the newly revised Company Law introduces an accelerated maturity system under the subscription system, stipulating that shareholders must fulfill their capital contribution obligations in advance under specific circumstances.
Article 88 [Capital contribution liability in the case of equity transfer] If a shareholder transfers equity that has been subscribed for but has not yet reached the capital contribution deadline, 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 liability for the capital contribution not paid on time by the transferee.
If a shareholder who fails to pay the capital contribution according to the date stipulated in the company's articles of association or whose non-monetary property as a capital contribution has a significantly lower actual value than the subscribed capital contribution amount transfers equity, the transferor and transferee shall bear joint and several liability within the scope of insufficient capital contribution; if the transferee does not know and should not know that the above-mentioned circumstances exist, the transferor shall bear the liability.
2. Supreme People's Court's Provisions on Several Issues Concerning the Application of the Company Law of the People's Republic of China (II) (2020 Revision)
Article 18 If the shareholders of a limited liability company, the directors and controlling shareholders of a joint-stock limited company fail to establish a liquidation group to begin liquidation within the statutory time limit, resulting in the devaluation, loss, damage, or destruction of company property, and the creditor claims that they bear compensation liability for the company's debts within the scope of the losses caused, the people's court shall support it according to the law.
If the shareholders of a limited liability company, the directors and controlling shareholders of a joint-stock limited company fail to perform their duties, resulting in the loss of the company's main property, accounts, and important documents, making it impossible to conduct liquidation, and the creditor claims that they bear joint and several liability for the company's debts, the people's court shall support it according to the law.
If the above-mentioned circumstances are caused by the actual controller, and the creditor claims that the actual controller bears the corresponding civil liability for the company's debts, the people's court shall support it according to the law.
Article 22 When a company is dissolved, all unpaid capital contributions of shareholders shall be treated as liquidation assets. Unpaid capital contributions include capital contributions that are due but unpaid, and capital contributions that are to be paid in installments according to the provisions of Articles 26 and 80 of the Company Law and have not yet reached the payment deadline.
If the company's property is insufficient to repay its debts, and the creditor claims that shareholders with unpaid capital contributions, and other shareholders or promoters at the time of the company's establishment, bear joint and several liability for the company's debts within the scope of unpaid capital contributions, the people's court shall support it according to the law.
3. Supreme People's Court's Provisions on Several Issues Concerning the Change and Addition of Parties in Civil Enforcement (2020 Revision)
Article 17 If a for-profit legal person as the person subject to enforcement has insufficient property to repay the debts determined by the effective legal document, and the applicant for enforcement applies to change or add shareholders, investors who have not paid or have not paid in full capital contributions, or promoters who bear joint and several liability for the capital contribution according to the provisions of the Company Law as the person subject to enforcement, and bear liability according to the law within the scope of unpaid capital contributions, the people's court shall support it.
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