The new Company Law of the People’s Republic of China was officially reviewed and passed on December 29, 2023, and will be officially implemented on July 1, 2024.
The updated Company Law has made revisions to many important issues, and this article will focus on the important provisions of the new Law regarding the shareholders’ capital contribution obligations of limited liability company :
* Set the maximum period for the subscribed capital contribution of shareholders, normalizing the acceleration of shareholder contributions.
The revised Company Law has made certain revisions to the subscribed capital system for limited liability companies, requiring “the total amount of capital contributions subscribed by all shareholders to be fully paid within five years from the date of the company’s establishment” in accordance with the company’s articles of association. It mandates the longest period for shareholders of limited liability companies to fulfill their subscribed capital contribution, aiming to ensure reasonable expectations for the realization of creditor’s rights, reduce transaction risks, and stabilize company operations.
* Introduction of the accelerated contribution expiration system, allowing creditors to demand early contribution of the capital
The revised Company Law introduces the accelerated contribution system, stipulating that if a company cannot repay its matured debts, creditors with matured claims have the right to demand shareholders who have subscribed but have not yet reached the contribution deadline to make early payments.
* Provide board’s responsibility to urge capital contributions and the system for shareholders losing their rights, enhancing rules for handling untrue capital contributions by shareholders
The new Company Law specifies that after the establishment of a limited liability company, the board of directors is obligated to verify the capital contributions of shareholders.
If a shareholder fails to make a timely and full contribution, the company should issue a written reminder to urge the contribution. Directors are responsible for any losses caused by the failure to fulfill this obligation shall be held liable for compensation.
If a shareholder does not fulfill the capital contribution obligation within the period specified in the company’s written reminder, the board of directors can issue a notice of loss of rights, and the shareholder loses the equity not yet contributed from the date of the notice.
The forfeited equity should be transferred according to the law, or corresponding capital should be reduced in registered capital. If not transferred or reduced within six months, other shareholders should make the corresponding contributions in proportion to their capital contributions. Shareholders who disagree with the loss of rights can file a lawsuit within 30 days of receiving the notice of loss of rights.
