Editor's Note: The Company Law of the People's Republic of China, revised at the end of 2013, changed the paid-up system of registered capital to a subscription system of registered capital, and the shareholders of the company enjoy the benefits of the term during the subscription period. If the shareholder transfers the equity before the expiry of the capital contribution period, the views of the local courts are different as to whether the transferor continues to bear the obligation to contribute capital, that is, whether the company or the creditor can require the transferor to be liable for the non-paid capital contribution when transferring the equity.
The purpose of this article is to analyze the assumption of capital contribution liability and related risks after the transfer of equity by subscribed shareholders who have not yet made a capital contribution period through a case, with a view to sorting out and classifying such issues through legal practice.
Case
On June 12, 2015, Li and Wang established XX Company as promoters with a registered capital of 10 million yuan, of which Li subscribed 6 million yuan, accounting for 60% of the shares, and Wang subscribed 4 million yuan, accounting for 40% of the shares, and the capital contribution period was June 12, 2035. On November 28, 2018, Li and Wang signed the Equity Transfer Agreement and went through the formalities for industrial and commercial change on the same day, and Li transferred 60% of the equity of XX Company held by Him to Wang, and Li had not paid the capital contribution at the time of the transfer.
In this case, after Li transferred his equity, how should he bear the capital contribution responsibility of the subscribed part, there are the following adjudication views:
Referee's point of view
01 Point 1: The assignor and the assignee bear corresponding responsibilities
A. The shareholder enjoys the "time limit interest" of the capital contribution, and the transfer of the equity by the shareholder before the expiration of the capital contribution period is not a situation in which the equity is transferred without fulfilling the capital contribution obligation in accordance with the law. However, when there is an accelerated maturity of the shareholder's capital contribution, the transferor shall bear the corresponding liability.
▶ Related cases
Trial court: Supreme People's Court
Case No.: (2019) SPC Min Zhong No. 230
Main points of the judgment: On the issue of whether Feng Liang and Feng Dakun should bear supplementary responsibility. In this case, the subscription period of Feng Liang and Feng Dakun, the original shareholders of Gansu Huahuineng Company, was until December 31, 2025. Article 28 of the Company Law of the People's Republic of China stipulates that shareholders shall pay the capital contributions subscribed by each of them as stipulated in the articles of association of the company on time. Shareholders enjoy the "term benefit" of capital contribution, and when the company's creditors conduct transactions with the company, they have the opportunity to comprehensively examine whether to conduct transactions with the company on the basis of reviewing the credit information such as the time of capital contribution of the company's shareholders, and the creditors' decision on the transaction should be bound by the time of the shareholders' capital contribution. The second paragraph of Article 13 of the Provisions of the Supreme People's Court on Several Issues Concerning the Application of the Company Law of the People's Republic of China (III) shall be understood as "failure to perform or not fully perform the capital contribution obligation" as "failure to pay or not pay the capital contribution in full", and the shareholder who has not yet completed the capital contribution period shall not be deemed to have "failed to perform or have not fully performed the capital contribution obligation". In this case, when Feng Liang and Feng Dakun transferred all their equity, the period for the capital contribution of the subscribed shares had not yet expired, which did not constitute the situation of "transferring the equity without performing or fully performing the capital contribution obligation" as stipulated in article 13, paragraph 2 and article 18 of the Provisions of the Supreme People's Court on Several Issues Concerning the Application of the Company Law of the People's Republic of China (III), and Zeng Lei did not produce evidence to prove that he expressed or trusted the specific capital contribution period of the above-mentioned shareholders based on feng Liang and Feng Dakun's intentions or actual acts, Based on the above confirmation or trust, the creditor-debtor relationship with Gansu Huahuineng Company was also generated. The essence of Zeng Lei's claim that Feng Liang and Feng Dakun bear supplementary compensation liability for the part of gansu Huahuineng Company's debts that cannot be repaid within the scope of unpaid capital interest is to claim that Feng Liang and Feng Dakun's capital contributions should be matured at an accelerated pace, and the appeal request has no legal basis and is not supported by this court.
B. The shareholder's capital contribution obligation is a statutory obligation prescribed by law, and the transfer of equity by the shareholder of the company before the subscription period is not completed, which is the case of the transfer of equity without fulfilling the capital contribution obligation in accordance with the law, and the transferor shall bear the corresponding responsibility.
Trial court: Shanyang District People's Court of Jiaozuo City
Case No.: (2018) Yu 0811 Min Chu No. 963
Main points of the judgment: In this case, the plaintiff Guo Yingying, as the original shareholder of the defendant Qingdao Zhongdingrun Company, subscribed the capital contribution of 1,000,000 yuan, and had actually paid 250,000 yuan, leaving 750,000 yuan unpaid. The plaintiff, Guo Yingying, promised in the company's articles of association that the subscription period would be until October 9, 2044, and the subscription period of the capital contribution commitment was the period of existence, during which time she had the obligation to contribute capital, so although its subscription period had not yet expired, it still had the obligation to contribute to Qingdao Zhongdingrun Company when transferring its equity. In addition, according to the provisions of Article 28 of the Company Law, it can be seen that the shareholder's capital contribution obligation is a statutory obligation stipulated by law and cannot be transferred or exempted due to the agreement between the plaintiff and the equity transferee, so although the plaintiff Guo Yingying transferred all her equity in the defendant Qingdao Zhongdingrun Company, her capital contribution liability to the defendant Qingdao Zhongdingrun Company could not be transferred or exempted accordingly. In summary, the plaintiff Guo Yingying transferred the equity without fully performing the capital contribution obligation, and when the assets of Qingdao Zhongdingrun Company were insufficient to pay off the debts determined in the effective legal documents, fengshen tire company applied to add him as the executor and required him to bear responsibility within the scope of the failure to contribute capital according to law, which was in accordance with the law and should be supported. The plaintiff Guo Yingying's request to revoke the (2018) Yu 0811 Zhiyi No. 5 Enforcement Ruling to add the part of her as the executor lacks a basis and is not supported by this court.
▶ Analysis of viewpoints
The failure to contribute capital without the expiration of the capital contribution period is fundamentally different from the failure to perform or fully perform the capital contribution obligation. The act of transferring equity before the expiry of the capital contribution period of a shareholder is not a situation in which the equity is transferred without performing the capital contribution obligation in accordance with the law, so there is no legal basis for the transferor to bear responsibility. If the responsibility for capital enrichment after the equity transfer is jointly borne by the transferor and the transferee, it will prevent the transferor from withdrawing from the company through equity transfer.
02 Point 2: Determine whether the assignor is liable according to the time of formation of the claim
If the creditor's rights are formed before the equity transfer, and the shareholder transfers the equity before the expiration of the capital contribution period, the transferor shall bear joint and several liability for the company's debts within the scope of subscription.
Trial court: Intermediate People's Court of Qingdao Municipality, Shandong Province
Case No.: (2020) Lu 02 Min Zhong No. 12403
Main points of the judgment: On the third focus issue, this court held that the appellants Tongshun Company and Zhou Jieru should bear joint and several liability for the arrears involved in the case within the scope of their capital contribution. The Court held that, in the event that a claim is formed in the shareholding of a former shareholder and the company is cancelled before the capital contribution period is reached, the former shareholder shall bear joint and several liquidation liabilities within the scope of its capital contribution in accordance with the provisions of the Provisions of the Supreme People's Court on Several Issues Concerning the Application of the Company Law of the People's Republic of China (II) (hereinafter referred to as the Judicial Interpretation (II) of the Company Law), the second paragraph of Article 22, and Article 65 of the Contract Law of the People's Republic of China (hereinafter referred to as the Contract Law). First of all, from the point of view of time, the debts of the contract involved in this case occurred when the appellants Tong Shun Company and Zhou Jieru held shares. In this case, Tongshun Company and Zhou Jieru were shareholders of the equipment sales contract between the appellee and Zhulun Company, and the two shareholders enjoyed the benefits brought by the target company in the sales contract involved in the case, and at the time of the equity transfer involved in the case, they should be aware of the debts owed by the company; secondly, in the case of the cancellation of the company, the capital contribution obligations waived by the appellant Tongshun Company and Zhou Jieru due to the transfer of equity should be reversed.
For claims formed during the shareholding period of the original shareholder, in the event that after the transfer of the former shareholder, the latter shareholder cancels the company and fails to fulfill the capital contribution obligation, the former shareholder shall bear joint and several liability for the repayment of the company's debts within the scope of the capital contribution.
▶ Analysis of point two
The company has an independent legal personality and bears responsibility for the outside world with its own property, the company and the shareholders are separate entities, and whether the assignor is liable or not is not related to the time of formation of the claim.
03 Point 3: The shareholder's equity transfer is carried out before the expiration of the capital contribution period, and the capital contribution responsibility is transferred in a general manner
After the equity transfer of the capital contribution period, the capital contribution responsibility is then transferred in a general manner, and after the transfer, the transferor no longer has the status of a shareholder, no longer has the corresponding capital contribution obligation to the company, and does not need to be liable to the creditors.
Trial court: Beijing Municipal Third Intermediate People's Court
Case No.: (2020) Jing 03 Min Zhong No. 4730
Gist of the judgment: Although Liqin Company appealed, in accordance with the spirit of the Minutes of the National Court Civil and Commercial Trial Work Conference issued on November 14, 2019, in the case of the company as the executor, the people's court exhausted the enforcement measures and had no property to enforce, and had the reason for bankruptcy, but did not apply for bankruptcy, requiring the shareholders who had not yet made the capital contribution period to bear supplementary compensation liability for the company's debts that could not be repaid within the scope of the unpaid capital contribution, it should be supported by the court. Specific to this case, if Xinshumai Company was still unable to pay off its debts as they fell due after compulsory enforcement by the court, and had the reason for bankruptcy and did not apply for bankruptcy, it should order the shareholders' capital contribution obligation to expire expedited, so it should order Yan Shouguo's capital contribution obligation to accelerate the maturity. In this regard, after review, this court held that the main system of the above-mentioned meeting minutes spiritual norm proposed by Liqin Company on appeal had not yet reached the shareholders of the company with a capital contribution period, and in this case, Yan Shouguo had transferred the equity held by Yan Shouguo to an outsider before the expiration of the subscription period and Liqin Company's application for compulsory enforcement, and Yan Shouguo was not a shareholder of Xinshumai Company, so this court held that Liqin Company requested that Yan Shouguo's capital contribution obligation be ordered to expire at an accelerated rate on the grounds that Yan Shouguo had not fully fulfilled its capital contribution obligation. The appeal claim to add him as an executor and bear the liquidation liability to Liqin Company within the scope of the unpaid capital of 2.4 million yuan has no basis in law, and this court does not accept this.
▶ Point three analysis
If the assignor is not liable for the capital contribution that has not yet matured at the time of the assignment, there may be a situation where the transfer may occur in bad faith to evade the claim, and the interests of the company or the company's creditors will be difficult to protect.
04Author's opinion:
After the equity transfer, the transferor shall no longer bear the obligation to contribute capital, but if the transferor's transfer is manifestly malicious, the transferor shall bear the corresponding capital contribution obligation within the scope of its subscribed capital contribution.
The shareholder does not have the obligation to contribute capital before the expiration of the subscription period, and if the equity is transferred before the capital contribution period, the transferor does not bear the obligation to contribute capital, because once the equity is transferred, the transferor no longer enjoys the rights of the shareholders, and the corresponding obligation to contribute capital should no longer be assumed. However, if the transferor's transfer is manifestly malicious, the assignor shall bear the corresponding capital contribution obligation within the scope of its subscribed capital contribution.
Case No.: (2020) SPC Minshen No. 133
Main points of the judgment: In this case, the registered capital of 350,000 yuan at the time of the establishment and registration of Xintianli Company on April 27, 2007 was paid in full, and the registered capital of Xintianli Company was increased from 350,000 yuan to 10 million yuan and 70 million yuan on May 9, 2014 and October 30, 2014, and the company's articles of association stipulated that the two new registered capitals would be paid by its shareholders before May 9, 2019 and October 30, 2019, respectively. The sale and purchase contract claims of Zhongqixin Company against Xintianli Company as determined on the basis of the enforcement of this case occurred between the two capital increases of the registered capital of Xintianli Company on May 9, 2014 and October 30, 2014, and Xintianli Company increased the registered capital of the company from 350,000 yuan to 10 million yuan on May 9, 2014, which had a public effect and a basis of trust in the transaction involved in the creditor Xintianli Company's case. The addition of the person subject to enforcement in the compulsory enforcement procedure is an expansion of the subject of the performance of the obligation to a certain extent or within a certain range of the main text of the effective legal document as the basis for enforcement, provided for in laws or judicial interpretations. In view of the fact that the original shareholders of Xintianli Company, Mai Shuli, Wu Dong, Li Yueping and Longchang Coal Mining Company, had already transferred their respective shares before the expiration of the capital contribution period, the second-instance judgment ruled that Yuan Chunsheng, who had added the transferred shares, as the executor, and there was no impropriety in adding Mai Shuli, Wu Dong, Li Yueping and Longchang Coal Mining Company as the executors.
Case No.: (2019) SPC Minshen No. 1112
Main points of the judgment: In this case, according to the Enforcement Ruling of Beijing No. 45 of the First Intermediate People's Court of Beijing Municipality (2018) Jing01 Zhiyi and the facts of the first review of this case, on March 7, 2014, when the Zhongke Research Institute and Zhongshi Da Company signed the "Technical Service Contract", the industrial and commercial registration of Zhongshi Da Company showed that the registered capital of the company was 1 million yuan, the New Yuan company subscribed 100,000 yuan, and the paid-up time was until July 9, 2015. On July 31, 2014, less than six months after the signing of the contract involved in the case, the articles of association of Zhongshi Da Company were amended to significantly increase the registered capital of Zhongshi Da Company from RMB1 million to RMB50 million, of which the subscribed capital of Singapore Dollar Company was changed from RMB100,000 to RMB5 million, and the capital contribution time was postponed to December 6, 2034. As at 22 March 2016, S$Corp had not paid any capital contribution. At the expiration of the capital contribution period stipulated in the articles of association of the company before the amendment, The New Yuan Company not only failed to pay the capital contribution, but instead significantly increased the subscribed capital contribution amount and extended the capital contribution period for a long time, and in the absence of evidence to prove that Zhongshi Da Company had the ability to pay off debts, the above-mentioned acts objectively adversely affected the realization of the creditor's rights of the Zhongke Research Institute. The relevant capital contribution information of Xinyuan Company stipulated in the articles of association of Zhongshi Da Company before the amendment was confirmed by the industrial and commercial registration and had the effect of public credibility, and the original trial found that the trust interests of the creditor Zhongke Research Institute based on the effect of public credibility should be protected, and there was no impropriety. After the transaction involved in the case occurred, Zhongshi Da Company amended the company's articles of association to adjust the registered capital and capital contribution period of Xinyuan Company, but the facts that occurred later cannot be used as a judgment factor for Zhongshi Da Company's subjective cognition of the prior transaction. Moreover, the amendment of the articles of association of the company to forbade the relevant obligations of the shareholders of the company and increase the potential risks of the creditors is not enough to resist the reasonable trust of the creditor Zhongke Research Institute on the debtor's original articles of association. Taking into account the performance capacity of Zhongshi Da Company, the actual situation of Xinyuan Company's performance of its capital contribution obligations, and the reliance interests of Zhongke Research Institute should be protected, the original trial found that Xinyuan Company's claim that it should not assume responsibility for Zhongke Research Institute could not be established, and it was not improper.
Associated risks
01 Risk 1: Under the circumstances of execution, dissolution, bankruptcy and other circumstances of XX company, Li has the risk of accelerating the maturity of capital contribution
Legal basis:
Article 19 of the Provisions on Several Issues Concerning the Modification or Addition of Parties in Civil Enforcement Article 19 Where the assets of the company subject to enforcement are insufficient to pay off the debts determined in the effective legal documents, and its shareholders do not perform their capital contribution obligations in accordance with the law, that is, transfer their equity, and the applicant for enforcement applies for the modification or addition of the original shareholder or the promoter who bears joint and several liability for the capital contribution in accordance with the provisions of the Company Law is the judgment debtor, and bears responsibility within the scope of the failure to contribute capital in accordance with law, the people's court shall support it.
Article 22 of the Provisions of the Supreme People's Court on The Application of the < several issues > the Company Law of the People's Republic of China (II) Article 22 When a company is dissolved, the capital contributions that have not yet been paid by the shareholders shall be regarded as liquidation property. The capital contributions that have not yet been paid by shareholders include the capital contributions that are due and unpaid, as well as the capital contributions that have not yet expired the payment period in installments in accordance with the provisions of Articles 26 and 80 of the Company Law.
When the company's assets are insufficient to pay off its debts, and the creditor claims that the shareholders who have not paid the capital contribution, as well as other shareholders or promoters at the time of the establishment of the company, bear joint and several liability for the repayment of the company's debts within the scope of the unpaid capital contribution, the people's court shall support it in accordance with law.
Article 35 of the Enterprise Bankruptcy Law of the People's Republic of China If, after the people's court accepts the bankruptcy application, the debtor's contributor has not fully performed its capital contribution obligation, the administrator shall require the investor to pay the subscribed capital contribution, without being subject to the restriction on the period of capital contribution.
02 Risk two: The risk that the capital contribution period expires and XX Company or other shareholders require Li to perform the capital contribution obligation
Legal basis: Paragraph 1 of Article 13 of the Provisions of the Supreme People's Court on the Application of< several issues > the Company Law of the People's Republic of China (III) on the Application of the Provisions of the Supreme People's Court on the Application of the Company Law of the People's Republic of China (III) Where a shareholder fails to perform or fails to fully perform its capital contribution obligation, and the company or other shareholders request it to fully perform its capital contribution obligation to the company in accordance with law, the people's court shall support it.
03 Risk three: After Li transfers his equity, he bears joint and several liability for the acts of other promoters who have not contributed capital
Legal basis: Paragraph 3 of Article 13 of the Provisions of the Supreme People's Court on the Application of the < of several issues > the Company Law of the People's Republic of China (III) Where a shareholder fails to perform or does not fully perform its capital contribution obligations when the company is established, and the plaintiff who files a lawsuit in accordance with the first or second paragraph of this article requests the promoter of the company and the defendant shareholder to bear joint and several liability, the people's court shall support it; after the promoter of the company assumes responsibility, it may recover compensation from the defendant shareholder.
04 Risk four: Li did not contribute capital, even if he repaid the debt on behalf of XX Company, it is not considered to be a capital contribution to the company
Related cases
Court of Hearing: Shannan District Intermediate People's Court of tibet autonomous region
Case No.: (2014) Shanmin Erchuzi No. 02
Main points of the judgment: The defendant Cheng Zhao proposed that in addition to the capital contribution made by the company at the time of its establishment, the actual capital contribution in the process of the company's construction and operation had exceeded the registered capital, and the debts it repaid for the company as a shareholder should be deemed to be its capital contribution, and the defendant Ou bo Rinchen proposed to change the registered capital to 2,950,000 yuan in 2011. Due to the funds invested in the construction and operation of the company and the repayment of external debts for the company as a shareholder, it is a debt arising from the business premises of the construction company and the actual operation of the company after the company is registered and established, and it is not the registered capital of the company, and the registered capital on the relevant information of the company registration department only shows the content of the initial registration and registration, and does not show the content of the change of the registered capital. Therefore, the reasons put forward by the two defendants have no basis in law and are not accepted by this court.
05 Risk five: The equity transfer is completed, and even if the transfer payment is not received, the tax will be paid
1. Personal income tax is levied at a rate of 20%.
According to the Measures for the Administration of Individual Income Tax on Income from Equity Transfer (Trial Implementation), as long as the equity transfer is completed, even if the transfer payment is not received, personal income must be paid. Income from the transfer of equity is a taxable item of income from property transfer and shall be subject to individual income tax at a rate of 20%.
2. How to deal with tax issues if the equity has been transferred
(1) Administrative penalties
Notice of Tax Administrative Penalties of the Third Inspection Bureau of the Nanjing Municipal Taxation Bureau of the State Administration of Taxation
Ning Shui Ji Three Penalty Notice [2020] No. 149
Important points: According to Article 63 of the "Tax Collection and Administration Law of the People's Republic of China", "a taxpayer who forges, alters, conceals, or destroys account books or accounting vouchers without authorization, or lists more expenditures or omits or under-lists income in the account books, or refuses to declare or makes false tax declarations after being notified by the tax authorities, and fails to pay or underpays the tax payable, is tax evasion." Where a taxpayer evades taxes, the tax authorities shall pursue the taxes and late fees that he or she has not paid or underpaid, and shall impose a fine of not less than 50 percent but not more than five times the tax that he has not paid or underpaid; if a crime is constituted, criminal responsibility shall be pursued in accordance with law", and it is proposed that you shall be fined twice the above-mentioned underpayment of personal income tax, totaling 2.88 million yuan.
(2) Criminal liability
Trial court: Xuzhou Quanshan District People's Court
Case No.: (2014) Quan Xing Chu Zi No. 253
Case: In July 2006, defendants Wang and Li jointly invested RMB67 million to acquire all the equity of Xuzhou Tianjia Real Estate Co., Ltd. Among them, defendant Wang invested RMB52.26 million, accounting for 78% of the shares. Subsequently, in July and October 2006, defendant Wang signed an equity transfer agreement and a supplementary agreement with Tianjin Zhongwei Trading Co., Ltd., stipulating that it would sell its 78% equity interest in Xuzhou Tianjia Real Estate Development Co., Ltd. for RMB161.1296 million. In accordance with the requirements of the defendant, Tianjin Zhongwei Trading Co., Ltd. successively settled all the equity transfers in the form of entrusted payments. However, defendant Wang has not paid the tax payable. In April, June, and August 2011, the Inspection Bureau of the Xuzhou Local Taxation Bureau delivered three notices to defendant Wang Mou on a time-limited notice of tax payment, requiring him to pay back the tax within the prescribed period. From December 2010 to August 26, 2011, Mr. Wang paid personal income tax, stamp duty, late fees and fines totaling RMB2,502,861.6.
After the case was established as a criminal case, defendant Wang mou successively refunded a total of 10.45 million yuan in taxes to the public security organs.
Verdict: Defendant Wang Committed tax evasion and was sentenced to three years' imprisonment and fined RMB 500,000.
Conclusion
In summary, there are several different adjudication views in judicial practice on the division of capital contribution liability of subscribed shareholders who have not yet made a capital contribution period; there are civil risks such as the risk of accelerating capital contribution, the risk of continuing to perform the capital contribution obligation at the expiration of the capital contribution period, the risk of bearing joint and several liability for other promoters, as well as tax risks, administrative punishment risks, criminal liability risks, etc. It is recommended that the transferor and the transferee fully understand and consider the corresponding legal risks when transferring equity.
This article is based on the relevant regulations
[1] Criminal Law of the People's Republic of China
[2] Company Law of the People's Republic of China
[3] Enterprise Bankruptcy Law of the People's Republic of China
[4] Law of the People's Republic of China on the Administration of Tax Collection
[5] Measures for the Administration of Individual Income Tax on Income From Equity Transfer (Trial Implementation)
[6] Provisions of the Supreme People's Court on Several Issues Concerning the Application of the Company Law of the people's republic of china < the > (II)
[7] Provisions of the Supreme People's Court on Several Issues Concerning the Application of the Company Law of the people's republic of china < > (III)
[8] Provisions of the Supreme People's Court on Several Issues Concerning the Application of the < enterprise bankruptcy law of the People's Republic of China > (II)
[9] Provisions of the Supreme People's Court on Several Issues Concerning the Modification and Addition of Parties in Civil Enforcement
[10] Minutes of the National Court Work Conference on Civil and Commercial Trials