Author's Profile: Wu Xiang, Director, Senior Partner, Lawyer of Guangdong Legal Shengbang Law Firm, graduated from China University of Political Science and Law with a Master's Degree in Civil Law. He is a member of the China National Democratic Construction Association, a member of the 12th Guangzhou Municipal Committee of the Chinese People's Political Consultative Conference (CPPCC), and an arbitrator of the South China International Economic and Trade Arbitration Commission (the Board of Directors of the Shenzhen International Arbitration Court).

I. Brief description of the case

Since March 2015, Plaintiff Company A provided domestic courier and warehousing services for Defendant Company B. Plaintiff Company A and Defendant Company B entered into the Domestic Courier Service Contract, agreeing that Plaintiff Company A would provide Defendant Company B with domestic courier services. After the signing of the said contract, the Plaintiff Company A provided services to the Defendant Company B. The Plaintiff Company A then began to refuse to pay the Defendant Company B for its services. Subsequently, Defendant Company B began to refuse to pay the service fees, and as of the date of Plaintiff Company A's lawsuit, it owed a cumulative total of $12,395,487.77 in service fees.

Plaintiff Company A filed a lawsuit with the court on August 25, 2015, and also listed Company B's shareholders Xie Moumou and Li Moumou as co-defendants, and Defendants Xie Moumou and Li Moumou transferred their equity interests on September 7, 2015 to the outsiders. Plaintiff Company A argued that Defendants Xie Moumou and Li Moumou, as shareholders and actual controllers of Company B, did not pay the capital contribution in full prior to the transfer of their equity, and should be held liable for supplemental indemnification of the company's debt to the extent of the principal and interest on the unfunded capital.

 

II. Court Findings and Judgment Results

The court found that on March 1, 2015, Plaintiff Company A and Defendant Company B entered into the Domestic Courier Service Contract, agreeing that Plaintiff Company A would provide domestic courier service to Company B, and the two parties determined the courier service contract relationship. Defendant Company B was established on August 29, 2014, the shareholders at the time of establishment were Li Moumou and Xie Moumou, and the legal representative was Xie Moumou. Defendant b company set up articles of association show the registered capital of 50 million yuan, of which li moumou contributed 20 million yuan, xie moumou contributed 30 million yuan, capital contribution time are 2034 years on august 1, 2015, li moumou, xie moumou will be held by the transfer of shares to the outsiders, transfer of li moumou actual capital of 100,000 yuan, xie moumou actual capital of 1,090,000 yuan.

Plaintiff company a and defendant company b signed a service contract and established the courier service relationship, both parties should be good faith, full performance of the contract obligations, the legitimate rights and interests of both parties are protected by law. The focus of the dispute is: the plaintiff claimed xie moumou, li moumou as the defendant company b shareholders at the time of establishment, before the transfer of its equity did not pay the capital contribution, whether in the un-funded principal and interest within the scope of the supplementary liability?

The court held that: the plaintiff company a claim xie moumou, li moumou as the defendant company b shareholders, before the transfer of equity did not pay the capital contribution, should bear the corresponding liability in the range of the principal and interest of the unfunded. In this regard, the court held that the defendant company b as the contract to receive services, should be all the property of the defendant liability, defendant li moumou, xie moumou as the defendant company b shareholders, in the case of defendant company b has a due debt, the company property can not fully settle the due debt, should be in the unprovided capital within the scope of the principal and interest of the defendant company b's debt to bear the supplemental compensation liability. Although Defendant Company B's articles of incorporation set forth the term of capital contribution has not yet expired, Defendant Company B has owed Plaintiff Company A a large amount of due debt before Defendant Li Moumou, Xie Moumou equity transfer, resulting in Plaintiff Company A filed a lawsuit with this court on August 25, 2015, and Defendant Li Moumou, Xie Moumou equity transfer date of September 7, 2015, Plaintiff Company A has reasonable grounds to believe that Defendant Li Moumou, Xie Moumou transfer of equity to an outsider subjectively malicious, the purpose is to avoid debt, damage to the claim of Plaintiff Company A. Therefore, Defendants Li Moumou, Xie Moumou should be Defendant Company B failed to Plaintiff Company A's debt should bear the responsibility of supplemental compensation.

 

III. Analysis of the case

The focus of the dispute in this case is on the "supreme people's court on the application of the company law of the People's Republic of China" provisions of several issues (3) "article 13, article 18 of the provisions of the problem. The company law, the shareholders to fully fulfill the capital contribution is a legal obligation, but before the provisions of the company, other shareholders and creditors to the company did not fulfill the capital contribution obligation to prosecute, and "the supreme people's court on the application of" the people's republic of china company law "a number of issues of the provisions of the provisions of the (three)" article 13 for the first time to establish the full capital contribution is not in accordance with the law of the justiciable. For the shareholders did not fulfill or did not fully fulfill the obligation of capital contribution in accordance with the law, the company's creditors have the right of action, can require the shareholders in the range of interest on its unprovided capital to the company fails to liquidate the debt to bear supplementary liability.

It can be seen that the shareholders in the company's articles of association of the capital contribution obligation is not just on paper, if the shareholders did not fulfill or did not fully fulfill the capital contribution obligation, is required to bear the corresponding legal consequences. After the establishment of the company, if the shareholders do not pay on time, for the full amount of capital contribution or always capital contribution is not in place, will certainly damage the integrity of the company's property and independence, the protection of the interests of creditors is also very unfavorable. Therefore, the law provides that when the company's property is not enough to settle debts, the creditors have the right to request the shareholders who have not fulfilled or have not fully fulfilled the obligation of capital contribution within the scope of the capital interest on the company's debts can not be settled part of the supplementary liability, in order to safeguard the legitimate rights and interests of creditors. In this case, the defendant company b shareholders xie mou, li moumou not only failed to fully fulfill the capital contribution obligation, but also in the company has due debt, the company property can not fully settle the due debt, in order to avoid the debt maliciously to the outsiders to transfer the equity, serious damage to the creditor's interests of the company.

The company assets is an important guarantee to realize the claims of the company's creditors, the shareholders did not perform or did not fully perform the obligation of capital contribution is bound to weaken the company's solvency and increase the risk of creditors, thus constituting an infringement of the company's creditors. The supreme people's court on the application of the company law of the People's Republic of China " a number of issues of the provisions of (3)" article 18 provides for the transfer of equity shareholders of the legal treatment, that is to say, did not fulfill the capital contribution or did not fully fulfill the capital contribution obligations or evasion of capital contribution of the shareholders, it is possible to transfer the equity shares, but still need to assume responsibility, if the transferee party knows that the contributors of the capital contribution is flawed but also transfers the equity shares, then the transferee shareholders should be liable for Joint and several liability, which is also the transferee is responsible for breaking the relativity of the contract.

It is worth noting that the supplemental liability of the shareholders who have not fulfilled or not fully fulfilled the obligation of capital contribution is limited to the scope of the principal and interest which should be capitalized in accordance with the articles of association of the company, and this limitation includes all the responsibilities of the shareholders to the outside world, and when the responsibilities have reached the limitation, any person can no longer claim the rights from the shareholders. The reason for limiting the liability of shareholders is based on the limited liability of shareholders in the modern limited liability company and joint-stock liability company system, the shareholders only have a limited obligation to contribute capital to the company, and do not have the obligation to bear the debts of the company directly. However, when the shareholders fail to fulfill or fully fulfill their capital contribution obligations, the company should have requested the shareholders to fulfill their capital contribution obligations, but for the purpose of effectively protecting the interests of creditors and reducing the burden on creditors, the law permits creditors to claim their rights directly against shareholders who are liable for the company's capital contribution obligations and to have them fulfill their obligations directly to the creditors, and the obligations borne by the shareholders are still limited by their capital contribution and do not change as a result.

 

IV. Conclusion

As far as the company is concerned, the registered capital is not the more the better, and certainly not the less the better. Rather, the registered capital should be set appropriately according to the industry in which the company is located, the scale of operation and development prospects. In the modern company business philosophy, the role of registered capital as to ensure the security of the transaction, the role of the promotion of the transaction in the gradual weakening of the counterparty to pay more attention to the net assets of the enterprise, cash flow and other elements, through the registered capital to support the idea of the facade is not desirable. In addition, the capital contribution period should not be too long, and should be based on the company's capital needs at different stages of development to match. Registered capital, once subscribed, shareholders should be paid in full on time, special circumstances, but also should be negotiated with the company and its shareholders to study the solution. For shareholders who have not paid the capital due, the company and its shareholders, directors, supervisors and executives should remind and actively urge them to fulfill their capital contribution obligations to protect the normal operation and long-term development of the company. For the shareholders who refuse to make contributions, the company may take relevant legal measures, or in the articles of association of the company in the right to dividends, voting rights, transfer of equity and other appropriate restrictions. When the debtor is the company and the assets are not enough to settle to the debt, as a creditor should not complain, self-admittedly bad luck, should carefully verify the company shareholders to contribute to the situation, to avoid the debtor to the company no funds as a "shield", to recover the money owed, according to the law to realize the debt, to safeguard their own legitimate rights and interests.

We should recognize the positive aspects of the provision of supplementary liability for shareholders who have not fulfilled or not fully fulfilled their capital contribution obligations. Under the capital contribution system, the capital contribution period by the articles of association of the company triggered the company creditors interest protection issues. Article 13 and Article 18 of the current judicial interpretation of the company law breaks through the relativity of debt, and extends the liability of shareholders and equity transferees to creditors, which increases the liability of shareholders, strengthens the obligation of shareholders of the company to supervise the formation of the company's capital, and ensures the validity of the company's assets and the interests of the company's creditors.

 

Legal Mailbox

1. Is a contribution that is not due a "failure" or "incomplete fulfillment" of the obligation to make a contribution?

Comrade Editor:

I am a company's legal representative, but also the company's shareholders, my company is a limited liability company, in the articles of association of the company agreed to a longer period of capital contribution, in accordance with the agreement has not yet arrived at the time of capital contribution, this time the creditor will be to the court to file a lawsuit to require the company's external liability, I as a shareholder to assume the responsibility of supplementary liquidation, then at this time I have not been due to capital contribution is not considered to be Is my contribution which is not yet due at this time considered as "failure to fulfill" or "failure to fully fulfill" the obligation of capital contribution and liable for the debts of the company?

Zhuhai Mr. Yang

 

2. How should equity transferees safeguard their legal rights and interests?

Comrade Editor:

According to Article 18 of the Provisions of the Supreme People's Court on the Application of the Company Law of the People's Republic of China on a Number of Issues (III), the transferee of the equity interest may also be jointly and severally liable with the shareholders, so how should the transferee protect their legitimate rights and interests?

Huizhou City Ms. Chen

Ms. Chen:

According to 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), the transferee shall be jointly and severally liable with the shareholders subject to the following conditions: (1) the shareholders of the limited liability company have failed to fulfill or have not fully fulfilled the obligation of capital contribution by transferring the shareholding; (2) the transferee is aware of or should be aware of it; and (2) the company or the creditors have requested the transferee to be jointly and severally liable for it. The company or creditors request the transferee to bear joint and several liability.

That is to say, the transferee transferee equity needs to bear joint and several liability is the important premise of the transferee for the transferee is non-bona fide, and do not need to worry about any circumstances need to bear joint and several liability. At the same time, the provisions of the second paragraph also provides the transferee with the umbrella of protection, that is, "the transferee according to the provisions of the preceding paragraph, the people's court shall support to the shareholders who have not fulfilled the obligation of the capital contribution, or not fully fulfilled the obligation of the people's court shall support the recovery of the capital contribution. However, except where the parties agree otherwise." Even if the transferee has assumed joint and several liability, the transferee can still recover from the shareholders as long as he or she has not agreed with the shareholders to an exception.

 

3. What are the limits of supplementary liability for shareholders?

Comrade Editor:

My company's current external debt up to more than 1 million, but I as a shareholder contributed to the capital contribution of only 300,000, there are still 250,000 is not fully performed, I need to be responsible for all the company's debt?

Zhaoqing Mr. Du

Mr. Du:

According to Article 13(2) of the Provisions of the Supreme People's Court on the Application of the Company Law of the People's Republic of China on a Number of Issues (3), "If a creditor of a company requests that a shareholder who has not fulfilled or has not fully fulfilled the obligation of capital contribution to bear the supplemental liability within the scope of the interest on the uncontributed capital for the portion of the company's debts that cannot be liquidated, the people's court shall support the request; the shareholder who has not fulfilled or has not fully fulfilled the obligation of capital contribution has already assumed the responsibility of the company. shareholders who have not fulfilled or not fully fulfilled their capital contribution obligations have already assumed the said liability, the people's court shall not support the request of other creditors for the same." Even if the shareholders need to assume supplementary liability for the company's debts, their liability is not unlimited, but limited.

According to your company's current situation, if the company's creditors request you to assume supplementary liability for the company's debts, your possible liability is limited to the amount of the capital contribution that you have not yet made, i.e. 250,000 RMB, and you do not need to assume supplementary liability for the excess. If you have already fulfilled the above liability, and other creditors make the same request, you can defend on the ground that you have already fulfilled it.