Interpretation of the revision of the Company Law... Bu Bin: The company's capital system and capital contribution responsibility.
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2024.02.23
the People's Republic of China the 7th meeting of the standing Committee of the 14th national people's congress revised and passed the company law of the the People's Republic of China (hereinafter referred to as the company law (revised in 2023)) on December 29, 2023, which will come into force on July 1, 2024. This revision has made significant adjustments to the shareholder's capital contribution responsibility and corporate governance structure. This series of articles through the analysis and interpretation of the revision of the Company Law, with a view to the follow-up of the company's legal practice is beneficial.
Improving the company's capital system and consolidating the responsibility of capital contribution are the key points of the revision of the Company Law. Supplements and amendments are made in terms of the limited liability company's deadline subscription system, the accelerated maturity system of shareholders' capital contributions, the authorized capital system and the paid-in system of joint-stock companies, the system of loss of shareholders' rights, the period of unexpired capital contributions and the liability mechanism for defective equity transfers, as follows:
Changes to the Registered Capital System of (I) Companies
1. Limited liability company subscription system and acceleration of capital contribution due
(1) Change from full subscription to limited subscription
1. However, the comprehensive subscription system not only stimulates the public's enthusiasm for starting a business and the motivation to set up a company, but also brings negative effects such as the abuse of term benefits and the sharp increase in the cost of creditors' rights protection, which increases the market transaction risk 2. In this context, the Companies Act (as amended in 2023) changed the full subscription system to a deadline subscription system. Article 47 of the Company Law (revised in 2023) 3 stipulates that the amount of capital contribution subscribed by all shareholders shall be paid in full within five years from the date of establishment of the company in accordance with the provisions of the articles of association. Too much amount of registered capital may become a potential burden on shareholders, and too small amount of registered capital may have an impact on the company's goodwill and creditworthiness, which means that shareholders need to dynamically adjust the amount of registered capital according to the company's operating conditions to keep it within a reasonable range.
It should be noted that according to the requirements of the Company Law (revised in 2023), if shareholders fail to pay their capital contributions in full and on time, in addition to paying them in full to the company, it shall also be liable for damages caused to the company 4. In addition, for other shareholders at the time of the establishment of the company, if any shareholder fails to actually pay the capital contribution 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, the other shareholders at the time of the establishment of the company and the shareholder shall bear joint and several liabilities within the scope of insufficient capital contribution 5.
(2) New accelerated maturity system for shareholder contributions
the company law (revised in 2023), on the basis of the deadline subscription system, clearly defines the relevant provisions of "accelerated expiration of capital contribution under non-bankruptcy circumstances" for the first time at the legal level. Compared with Article 6 6.
first, in terms of applicable conditions, article 6 of the "nine people's minutes" does not support the accelerated expiration of shareholders' contributions in principle, and only supports the accelerated expiration of shareholders' contributions under two specific circumstances. The Companies Act (as amended in 2023), on the other hand, normalizes the accelerated maturity of contributions. Article 54 of the company law (revised in 2023) 7 stipulates that shareholders who have subscribed their capital contributions but have not reached the deadline may be required to pay their capital contributions in advance as long as the company cannot pay off its due debts.
Second, in terms of the subject of exercise, the subject of exercise stipulated in Article 6 of the Nine People's Minutes is the creditor. Article 54 of the Company Law (as amended in 2023) stipulates that in addition to creditors, the company can also be the subject of exercise of power to require shareholders who have not yet made their capital contributions to pay in advance.
regarding the application of article 54 of the company law (revised in 2023), what is easy to dispute in practice may be how to understand "the company cannot pay off its due debts. Does "maturing debt" need to be confirmed through trial proceedings? Does "insolvent" require court enforcement as a pre-procedure? Specific application remains to be further observed.
2. Company Limited Authorized Capital and Paid-in System
(1) New Authorized Capital System
the company law (revised in 2023) introduces an authorized capital system for the issuance of shares in a joint stock limited company, stipulating that the articles of association or the shareholders' meeting may authorize the board of directors to issue no more than 50% shares within three years, if the registered capital and the number of issued shares of the company change as a result, the amendment to the articles of association does not need to be voted by the shareholders' meeting 8. The decision of the board of directors to issue new shares shall be approved by at least 2/3 of all directors 9.
The biggest difference between the authorized capital system and the statutory capital system lies in the difference between the decision to raise capital and the convenience of raising capital. The authorized capital system gives the board of directors the decision to raise capital at any time according to the business decision and the resolution of the shareholders' meeting, comply with business decision logic 10. The statutory capital system, although inflexible, has lower operating costs and is suitable for human-friendly limited liability companies. Limited companies emphasize capital, pay more attention to the company's size and financing capacity, the use of authorized capital system is more in line with the development needs of limited companies. The revision of the Company Law applies different capital systems according to the characteristics of different types of companies. Limited liability companies adopt the legal capital system and joint stock limited companies adopt the authorized capital system, which meets the needs of different types of companies 11.
(2) Initiate the establishment of a joint stock limited company from the subscription system to the actual payment system
12 provides for the establishment of a joint stock company by way of sponsorship, and the promoters shall recognize in writing the subscribed shares as stipulated in the articles of association and pay their capital contributions in accordance with the provisions of the articles of association. The registered capital system of a company limited by shares adopts the subscription system.
Section 98 (1) of the Companies Act (as amended in 2023) 13 stipulates that the promoter shall pay the full amount of the shares subscribed by the promoter before the establishment of the company, and explicitly initiates the change of the registered capital system for the establishment of a joint stock limited company from the subscription system to the paid-in system. After the introduction of the authorized capital system in the Companies Act (as amended in 2023), if shareholders continue to be allowed to pay their capital contributions in instalments, it will lead to problems such as difficulty in achieving the company's financing objectives and difficulties in the company's operations. Therefore, the Company Law (as amended in 2023), while introducing the authorized capital system, requires the promoter to pay the capital before the establishment of the company, which can effectively avoid the risk of the registered capital.
New and Old Convergence Provisions for Companies Established Before the Implementation of the (II) Law
according to article 266 of the company law (revised in 2023), for companies registered and established before July 1, 2024, first, if the capital contribution period exceeds the time limit stipulated in this law, except as otherwise provided by laws, administrative regulations or the State Council, it shall be gradually adjusted to within the time limit specified in this Law; second, if the period of capital contribution or the amount of capital contribution is obviously abnormal, the company registration authority may require it to make timely adjustments in accordance with the law. Specific implementation measures shall be formulated by the State Council.
The Supreme People's Court on the Application of the the People's Republic of China Company Law & lt; article 17 of the (III) on Certain Issues (revised in 2020) (hereinafter referred to as "Judicial Interpretation III of the Company Law") 14 stipulates that if a company fails to fulfill its obligation of capital contribution after urging a shareholder to do so, the shareholder may be disqualified by resolution of the shareholders' meeting.
the company law (revised in 2023) has absorbed the relevant provisions of the above judicial interpretation, added the collection obligation of the company and the board of directors, and optimized the system of shareholders' loss of rights. According to Article 51 of the Company Law (as amended in 2023) 15 and Article 52 16, the board of directors shall verify the capital contribution of shareholders, if it is found that a shareholder has failed to pay the capital contribution stipulated in the articles of association on time and in full, the company shall issue a written call to the shareholder to collect the capital contribution. A written reminder may contain a grace period of not less than 60 days for the payment of capital contributions. If the grace period expires and the shareholder has not fulfilled his obligation to contribute capital, the company may, by resolution of the board of directors, issue a notice of loss of power to the shareholder, which shall be issued in writing. From the date of issuance of the notice, the shareholder loses the equity of his unpaid capital contribution. The equity lost by the shareholder shall be transferred in accordance with the law, or the registered capital shall be reduced accordingly and the equity shall be canceled; if the equity is not transferred or canceled within six months, the other shareholders of the company shall pay the corresponding capital contribution in full in proportion to their capital contribution. If the shareholder disagrees with the loss of rights, he shall file a lawsuit in the people's court within 30 days from the date of receiving the notice of loss of rights.
The above revisions are worth noting:
1. The Company issues a written reminder that may indicate a grace period
The Company Law (as amended in 2023) strengthens the duties of the board of directors and emphasizes that the board of directors should check the capital contribution of shareholders. If it is found that a shareholder has not paid the capital contribution stipulated in the articles of association in full and on time, the company shall issue a written call to the shareholder. Article 52, paragraph 1, of the Company Law (as amended in 2023) provides that a company may issue a written reminder stating the grace period for the payment of capital contributions. Note that the expression here is "may" rather than "should", that is, the company may not specify the grace period in the written call. So, does the lack of a grace period mean that a grace period can be waived? If the grace period is not specified, how does it interface with the procedure for notice of loss of authority? These issues may be controversial in practice.
the first paragraph of article 52 of the company law (revised in 2023) stipulates that when the grace period expires, the company may, upon resolution of the board of directors, issue a notice of loss of power. The provision does not adopt the notice-arrival doctrine of the contract termination rule, but rather the notice-sending doctrine. The expression here is also "may" rather than "should". The intention of the legislature should be to consider whether the loss of the shareholder's equity after the necessary statutory reminder procedures should depend on the autonomy of the company, and the board of directors may choose not to issue a notice of loss of power and require the shareholder to continue to perform its capital contribution obligations. However, this leads to some questions: if a shareholder who has not fulfilled his capital contribution obligation can control the board of directors not to issue a notice of loss of power, is the only way for the shareholder to lose his or her equity? Can the manner of resolution of the shareholders' meeting as stipulated in Article 17 of the Judicial Interpretation III of the Company Law continue to apply? If it continues to apply, can the resolution of the shareholders' meeting exclude the voting rights of the shareholder? How does Article 17 of the Judicial Interpretation III of the Company Law and Article 52 of the Company Law (revised in 2023) link up in the operation process? These questions are subject to follow-up legislation and judicial practice to be answered.
3. Clarify the handling and duration of loss of equity
the second paragraph of article 52 of the company law (revised in 2023) stipulates that the lost equity shall be transferred according to law or the registered capital shall be reduced accordingly and the equity shall be canceled. If it is not transferred or canceled within six months, the other shareholders of the company shall pay the corresponding capital contribution in full in proportion to their capital contribution. This provision specifies the follow-up treatment path and treatment period for lost equity, clarifies the shareholders' obligation to cover the bottom, and is conducive to protecting the legitimate rights and interests of the company and creditors.
4. New remedies for losing shareholders
the third paragraph of article 52 of the company law (revised in 2023) stipulates that if the losing shareholders have any objection, they shall bring a lawsuit to the people's court within 30 days from the date of receiving the notice of loss of power, for the loss of shareholders to provide a remedy. The court shall comprehensively examine the legality of the procedure for the company to make a decision on the loss of power and whether there is a corresponding factual basis.
Article 18 17 provides that a shareholder of a limited liability company transfers an equity interest if he or she fails to perform or fully perform his or her capital contribution obligations, and the transferee knows or should know that the transferee is jointly and severally liable for the transfer.
Article 88 of the Companies Act (as amended in 2023) 18 has absorbed the relevant provisions of the aforementioned judicial interpretation and made it clear at the legislative level:
the company law (revised in 2023) adopts the view of dual attribute theory, believing that the obligation of contribution is both legal and contractual. The obligation of capital contribution may be transferred by agreement of the parties, and the transferee, while obtaining the qualification of shareholder, also succeeds the obligation of capital contribution of the transferor. In order to maintain the basis of the independent personality of the company legal person and protect the trust interests of external creditors, the transferor shall bear supplementary liability for the capital contribution that the transferee fails to pay on time.
the second paragraph of Article 88 of the company law (revised in 2023) clearly defines the first paragraph of Article 18 of the judicial interpretation of the company law as "failure to perform or fully perform the obligation of capital contribution" as "failure to pay capital contribution on the date of capital contribution stipulated in the articles of association" and "the actual value of non monetary property as capital contribution is significantly lower than the amount of capital contribution, in addition, it is distinguished from the situation of" transfer of equity within the period of unexpired contribution "in the first paragraph, and responds to the long-standing debate between theoretical and practical circles on whether unexpired contribution is an unfulfilled contribution obligation 19.
21. The establishment of a simple capital reduction procedure that matches the form of capital reduction is another highlight of the revision of the Company Law.
To understand the simplified capital reduction system, you should pay attention to the following points:
Article 214, paragraph 2, of the Companies Act (as amended in 2023) 22 stipulates that the use of provident fund to make up for the company's losses should first use any provident fund and statutory provident fund, still can not make up, can use the capital provident fund in accordance with the provisions. Only if the loss cannot be made up after the use of the provident fund in accordance with the aforementioned provisions can the registered capital be reduced to make up for the loss. , and after the capital reduction does not meet the statutory conditions shall not be distributed to shareholders
Since formal capital reduction will not substantially reduce the company's assets and will not harm the interests of the company's creditors, it is not necessary to notify creditors in accordance with the requirements of substantive capital reduction in procedures, however, it shall, within 30 days from the date of the resolution of the shareholders' meeting to reduce the registered capital, make an announcement in a newspaper or in the national enterprise credit information publicity system. 4. Legal Consequences of Illegal Capital Reduction regarding the legal consequences of illegal capital reduction, according to article 226 of the company law (revised in 2023), shareholders shall refund the funds they have received, and the company shall be restored to its original state if the capital contribution is reduced, shareholders and responsible directors, supervisors and senior managers shall be liable for compensation. to sum up, the company law (revised in 2023) has improved the company's registered capital system in view of the problems existing in practice, absorbed the relevant provisions of judicial interpretation, and put forward higher requirements for the liability of shareholders contributing capital, reflects the legislature's focus on protecting the legal interests of companies and creditors.
[Introduction to Practice] Master of Civil and Commercial Law of the Chinese University of Hong Kong. He is currently a lawyer of Shengdian Law Firm, senior corporate compliance engineer, deputy director of Shengdian Foreign Affairs Legal Professional Committee, director of Shenzhen University Law School Alumni Association, director of Shenzhen Legal Culture Research Association, selected into the Guangdong Foreign Lawyer Talent Pool, Shenzhen Foreign Lawyer Talent Pool, with securities qualifications, rich practical experience in dispute resolution, and has handled a large number of civil and commercial disputes, focus on corporate litigation, foreign-related litigation, commercial contracts, financial disputes, corporate compliance and other fields, good at handling difficult and complex cases, has provided legal services for dozens of domestic banks, securities firms, trusts, listed companies and large enterprises, etc., and is good at helping customers effectively achieve their business goals through litigation.
The working languages are Mandarin, Cantonese, English and Hakka.
Contact
Email: bubin@shengdian.com.cn
1. Article 28, paragraph 1, of the the People's Republic of China Company Law (as amended in 2018): "Shareholders shall pay in full and on time the amount of their respective contributions as stipulated in the articles of association. If a shareholder makes a capital contribution in currency, he shall deposit the full amount of the capital contribution in currency into an account opened by a limited liability company in a bank; if the capital contribution is made in non-monetary property, he shall go through the procedures for the transfer of his property rights in accordance with the law."
2. zhu ciyun: "where should the comprehensive subscription system of limited liability company go from here? & mdash; & lt; company law (third review draft of the revision) & gt; article 47", published in "modern law", no. 6, 2023.
3. Article 47 of the the People's Republic of China Company Law (as amended in 2023): "The registered capital of a limited liability company shall be the amount of capital contribution paid by all shareholders registered with the company registration authority. The amount of capital contribution subscribed by all shareholders shall be fully paid by the shareholders within five years from the date of establishment of the company in accordance with the provisions of the articles of association.
If there are other provisions in laws, administrative regulations and the decision of the State Council on the paid-in registered capital, the minimum amount of registered capital and the period of shareholders' capital contribution of a limited liability company, such provisions shall prevail."
4. Paragraph 3 of Article 49 of the the People's Republic of China Company Law (revised in 2023): "If a shareholder fails to pay the capital contribution in full and on time, in addition to paying the company in full, he shall also be liable for the losses caused to the company."
5. Article 50 of the the People's Republic of China Company Law (revised in 2023): "when a limited liability company is established, if the shareholders fail to actually pay their capital contributions in accordance with the provisions of the articles of association, or if the actual price of the non-monetary property actually contributed is significantly lower than the amount of capital contribution subscribed, the other shareholders at the time of establishment and the shareholder shall bear joint and several liability within the scope of insufficient capital contribution."
6. Minutes of the National Court Conference on Civil and Commercial Trials: "6. [Should shareholders' contributions expire at an accelerated rate] Under the registered capital subscription system, shareholders are entitled to term benefits in accordance with the law. The people's court shall not support the creditor's request that the shareholders of the outstanding capital contribution period bear supplementary liability for the debts that the company cannot pay off within the scope of the unfunded capital contribution on the grounds that the company cannot pay off the debts due. However, the following circumstances are excluded:(1) in the case of the company as the executed person, the people's court exhausts the enforcement measures and has no property to enforce, and has the reasons for bankruptcy, but does not apply for bankruptcy;(2) after the company's debts are incurred, the company's shareholders (The General Assembly) will resolve or otherwise extend the period of shareholder capital contribution."
7. Article 54 of the the People's Republic of China Company Law (as amended in 2023): "If the company is unable to pay off its debts as they fall due, the company or the creditors of the claims that have matured shall have the right to require the shareholders who have subscribed their capital contributions but have not reached the deadline for their capital contributions to pay their capital contributions in advance."
8. Article 152 of the Company Law of the the People's Republic of China (as amended in 2023): "The articles of association or the shareholders' meeting may authorize the board of directors to decide to issue shares not exceeding the 50% of shares issued within three years. However, if the capital contribution is made at the price of non-monetary property, it shall be decided by the shareholders' meeting.
If the board of directors decides to issue shares in accordance with the provisions of the preceding paragraph, resulting in changes in the company's registered capital and the number of issued shares, the amendment to the items recorded in the articles of association does not need to be voted by the shareholders meeting."
9. Article 153 of the the People's Republic of China Company Law (2023 Revision): "If the articles of association or the shareholders' meeting authorizes the board of directors to decide to issue new shares, the resolution of the board of directors shall be adopted by more than 2/3 of all directors."
10. Lin yiying: "the perfection of the registration system of the company's registered capital", in the journal of the state prosecutor's college, no 6, 2023
11. Shen zhaohui: "the system structure of authorized shareholding system & mdash;& mdash; Also commented on the relevant provisions of the 2021 company law (revised draft), the second issue of contemporary law in 2022
12. Article 83 of the Company Law of the the People's Republic of China (as amended in 2018): "Where a company limited by shares is established by way of initiation, the promoter shall recognize in writing the shares subscribed by the articles of association of the company and pay the capital contribution in accordance with the provisions of the articles of association of the company. Where a capital contribution is made in non-monetary property, the transfer of its property rights shall be handled in accordance with the law."
13. Article 98 of the the People's Republic of China Company Law (as amended in 2023): "The promoters shall pay the full amount of shares subscribed by them before the establishment of the company."
14. article 17 of the provisions and (III) of the supreme people's court on some issues concerning the application of the the People's Republic of China company law (amended in 2020): "if a shareholder of a limited liability company fails to fulfill the obligation of capital contribution or withdraws all his capital contribution, if he fails to pay or return his capital contribution within a reasonable period after being urged to pay or return by the company, the company shall disqualify the shareholder by resolution of the shareholders' meeting, if the shareholder requests confirmation that the discharge is invalid, the people's court will not support it."
15. Article 51 of the the People's Republic of China Company Law (2023 Revision): "After the establishment of a limited liability company, the board of directors shall verify the capital contribution of the shareholders, and if it is found that the shareholders have not paid 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 collect the capital contribution.
If the company fails to perform its obligations under the preceding paragraph in a timely manner and causes losses to the company, the responsible director shall be liable for compensation."
16. Article 52 of the the People's Republic of China Company Law (revised in 2023): "If a shareholder fails to pay his capital contribution in accordance with the date of capital contribution stipulated in the articles of association, and the company issues a written reminder in accordance with the first paragraph of the preceding article, the grace period for the payment of capital contribution may be stated; The grace period shall not be less than 60 days from the date when the company issues the reminder. If the grace period expires and the shareholder has not fulfilled his obligation to contribute capital, the company may, by resolution of the board of directors, issue a notice of loss of power to the shareholder, which shall be issued in writing. From the date of issuance of the notice, the shareholder loses the equity of his unpaid capital contribution.
The equity lost in accordance with the provisions of the preceding paragraph shall be transferred in accordance with the law, or the registered capital shall be reduced accordingly and the equity shall be canceled; if the equity is not transferred or canceled 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 file a lawsuit in the people's court within 30 days from the date of receiving the notice of loss of rights."
17. Article 18 of the (III) Provisions of the Supreme People's Court on Several Issues Concerning the Application of the the People's Republic of China Company Law (Revised in 2020): "If a shareholder of a limited liability company fails to perform or fails to fully perform his capital contribution obligations, the transferee knows or should know that the company requests the shareholder to perform the capital contribution obligations and the transferee assumes joint and several liability for them, the people's court shall support it; where the creditors of the company file a lawsuit against the shareholder in accordance with the second paragraph of Article 13 of these Provisions, and at the same time request the aforementioned transferee to bear joint and several liability for this, the people's court shall support it.
If the transferee, after assuming liability in accordance with the provisions of the preceding paragraph, recovers from the shareholder who has not fulfilled or has not fully fulfilled the obligation of capital contribution, the people's court shall support it. However, unless otherwise agreed by the parties."
18. Article 88 of the the People's Republic of China Company Law (revised in 2023): "If a shareholder transfers an equity that has been subscribed but has not reached the time limit for the 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 liability for the capital contribution that the transferee fails to pay on time.
If the shareholders who fail to pay the capital contribution in accordance with the capital contribution date stipulated in the articles of association or the actual value of the non-monetary property as the capital contribution is significantly lower than the capital contribution paid, the transferor and the transferee shall be jointly and severally liable within the scope of the insufficient capital contribution; if the transferee does not know and should not know the existence of the above situation, the transferor shall bear the responsibility."
19. Li Hao, "The Responsibility of Not Transferring: Analysis of the Rules of Liability for Capital Contribution after Equity Transfer & mdash;& mdash; Special Topic 5 on Interpretation of Litigation Practice in the New Company Law", with "Huizhong Law Firm" WeChat Public Number
20. Article 225 of the the People's Republic of China Company Law (revised in 2023): "if a company still has losses after making up for losses in accordance with the provisions of paragraph 2 of Article 214 of this Law, it may reduce its registered capital to make up for the losses. If the registered capital is reduced to make up for the losses, the company may not distribute it to the shareholders, nor may it exempt the shareholders from the obligation to pay capital contributions or share funds.
Where the registered capital is reduced in accordance with the provisions of the preceding paragraph, the provisions of the second paragraph of the preceding article shall not apply, but it shall be announced in the newspaper or the national enterprise credit information publicity system within 30 days from the date of the resolution of the shareholders' meeting to reduce the registered capital.
After the company has reduced its registered capital in accordance with the provisions of the preceding two paragraphs, it shall not distribute profits until the cumulative amount of the statutory provident fund and the discretionary provident fund reaches the 50% of the company's registered capital."
21. Zhang junyong: on the perfection of the capital reduction system in the revision of the company law, contained in the application of the law, no 1, 2023
22. Article 214, paragraph 2, of the the People's Republic of China Company Law (revised in 2023): "If the provident fund makes up for the company's losses, the arbitrary provident fund and the statutory provident fund shall be used first; if it still cannot be made up, the capital provident fund may be used in accordance with the regulations."
