People's Court Case Database: After the equity transfer of a one-person limited liability company, the new shareholder shall still be jointly and severally liable for the company's debts before and after the equity transfer in accordance with the law
Reference case: A company in Tai'an v. a company in Tieling, a case of a dispute over a sales contract between Chen, and Xie
2024-08-2-084-004 / Civil / Sales Contract Dispute / Intermediate People's Court of Tai'an City, Shandong Province / 2022.10.10 / (2022) Lu 09 Min Zhong No. 3392 / Second Instance
Summary of the trial
1. The original shareholder of a one-person limited liability company is the original investor and owner of the company, and is well aware and familiar with the debts incurred during the holding period, and the equity transfer can neither exempt it from the burden of proof that it should bear, nor can it produce the legal consequences of debt extinction or liability exemption. If the original shareholder cannot prove that the company's property is independent of its own property before the equity transfer, it shall be jointly and severally liable for the debts during its shareholding period, that is, before the equity transfer; After the equity transfer, the original shareholders withdraw from the company's investment and management, and are not liable for the debts incurred after the change of the company's shareholders. If the original shareholder issues an IOU or letter of commitment to the creditor for the debts after the equity transfer, and the creditor fails to explicitly refuse within a reasonable period of time, it shall be deemed to have joined the debt, and the original shareholders shall also be jointly and severally liable for the debts after the equity transfer.
2. The current shareholders of a one-person limited liability company shall directly apply the provisions of Article 63 of the Company Law to determine the company's debts after the equity transfer; For the assumption of the company's debts before the equity transfer, if it cannot be proved that the company's property is independent of its personal property, it should also be jointly and severally liable for the company's debts for the following reasons: first, although the company's debts were formed before the equity transfer, the company's debts have always existed and have not been paid off, and the changes in the company's internal equity and capital do not affect the company's subject qualifications, and the corresponding rights and obligations should be borne by the changed entity; Secondly, the current shareholders, as the new investors and owners of the company, have the ability and should fully understand the company's current assets and liabilities, including existing debts and contingent liabilities, before deciding whether to transfer the equity, so as to make a rational decision and make appropriate arrangements on whether to transfer the equity, the consideration for the transferred equity, and the rules for the assumption of the company's debts. Finally, in light of the provisions of Article 63 of the Company Law and the legislative intent, this provision gives creditors the right to pierce the corporate veil under certain conditions, and at the same time allocates the burden of proof to prove the separation of shareholders' property from the company's property, which is a reasonable distribution of risks and interests between the company's shareholders and creditors. To sum up, if the current shareholders of a one-person limited liability company cannot prove that the company's property is independent of their own property after the equity transfer, they should be jointly and severally liable for the company's debts before and after the equity transfer.
point of view
Author: Legislative Affairs Commission of the Standing Committee of the National People's Congress
Source: Interpretation of the Company Law of the People's Republic of China (Revised Version)
A one-person company is a major challenge to the principle of separation of ownership and management rights and limited liability under company law. A one-person shareholder establishes a company without a partner and enjoys the preferential treatment of limited liability, but because it is a one-person shareholder who controls the company, it is very easy to confuse the company's property with the shareholder's personal property, use the company's property for private use, borrow and guarantee for its own purposes in the name of the company, monopolize the company's property in a planned way, defraud creditors, and evade contractual obligations. These abuses of limited liability stem from the lack of mutual checks and balances among shareholders in a one-person company, which cannot be supervised by the structure or governance of the one-person company itself. Therefore, the law must adopt other more effective regulatory measures. In fact, all countries or regions that expressly recognize one-person companies in the Company Law or other relevant laws invariably provide for a number of legal measures at the same time to prevent the sole shareholder of a one-person company from abusing the principles of independent personality and limited liability of the company, and to enhance the protection of the company's creditors. At present, judging from the legislation or judicial practice of various countries, most of them have strengthened the legal regulation of one-person companies.
The amended Company Law recognizes the legal status of a one-person limited liability company, allows the establishment of a one-person limited liability company, and provides protection in accordance with the law, which should be said to be conducive to the investment of social funds in the economic field, and is conducive to the expansion of employment and enterprise development, but at the same time, in order to better protect the interests of the transaction counterparty and reduce the transaction risk, the law should also make special restrictive provisions on the one-person limited liability company, so as to achieve a balance between protection and regulation. It is not only a basic institutional configuration in the governance structure of a one-person limited liability company, but also an important legal measure to strengthen its regulation and strict management.
It should also be noted here that the provisions of this article are different from the meaning of Article 165 of the chapter on corporate finance and accounting of the Company Law, which clearly stipulates that "a company shall prepare a financial accounting report at the end of each accounting year and be audited by an accounting firm in accordance with the law". The provisions of the Accounting Law and other relevant laws clearly require that the financial and accounting reports of companies that must be audited must be audited by accounting firms. In accordance with the provisions of this article, a one-person limited liability company shall prepare a financial accounting report at the end of each fiscal year and be audited by an accounting firm. This is a mandatory norm of the law, which indicates that a one-person limited liability company is subject to statutory auditing, and the financial and accounting reports of a one-person limited liability company must be audited by an accounting firm.
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