Does the shareholder bear joint and several liability if he transfers his equity without making a full contribution？

Does the shareholder bear joint and several liability if he transfers his equity without making a full contribution?

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Case review

Defendant Zhang and outsiders Wu Mou and Fu established Company A in 2015, with a registered capital of 5 million, and the time of contribution was May 31, 2017, when Zhang was the legal representative. Defendant Zhang holds 80% of the shares, while Wu Mou and Fu each hold 10%. On August 31, 2016, Fu transferred all 10% of his shares to the defendant Zhang, and at that time, the defendant Zhang held 90% of the shares, and the subscription time was June 4, 2017. On January 20, 2020, the legal person of Company A was changed from Zhang to Yu. On January 20, August 11 and August 14, 2020, the defendant Zhang transferred 66% of the company’s shares to the defendant Yu, and transferred 10% of the shares to the defendant Yu on November 27, 2020.

After a company entered bankruptcy proceedings due to insolvency, the company sued Zhang, Yu and Yu to fulfill their shareholders’ capital contribution obligations.

court decision

According to Article 88 of the Company Law of People’s Republic of China (PRC), if a major shareholder fails to pay the capital contribution according to the date stipulated in the articles of association or the actual price of non-monetary property as capital contribution is significantly lower than the subscribed capital contribution, the transferor and transferee shall bear joint and several liabilities 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. "the Supreme People’s Court on the application of

<中华人民共和国公司法>Provisions on Several Issues (III) Paragraph 2 of Article 13 stipulates: "If the creditors of the company request the shareholders who have not fulfilled or have not fully fulfilled their capital contribution obligations to bear supplementary liability for the unpaid part of the company’s debts within the scope of unpaid principal and interest, the people’s court shall support it; Shareholders who have not fulfilled or fully fulfilled their capital contribution obligations have assumed the above responsibilities, and if other creditors make the same request, the people’s court will not support it. " The above-mentioned legal provisions apply to the situation that the shareholder’s capital contribution period has expired and the shareholder has the capital contribution obligation, but the shareholder fails to perform or fails to fully perform the capital contribution obligation.

In this case, when Zhang transferred the equity, his subscription period expired and the relevant funds have not been paid in full, and Yu and Yu did not pay the corresponding funds in full after the transfer of the equity, so Zhang, Yu and Yu should all bear the obligation and responsibility of capital contribution.

Judge’s statement

On July 1st, 2024, the Company Law of People’s Republic of China (PRC) was formally implemented. What are the obligations of shareholders of a limited liability company?

The new Company Law 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.

Original title: "Do shareholders bear joint and several liabilities if they transfer their shares without fully contributing?"

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