观韬视点 | 2024 PRC Company Law:Brief Introduction to key changes
作者:尹颖
《中华人民共和国公司法(2023修订)》(the “2024 Company Law”/“新公司法”)即将于2024年7月1日生效。不论是国内法律实务界、企业界还是外籍创业者群体,早已纷纷展开了对新公司法的学习。本文中,作者使用英语着重介绍了:(1)新公司法下有限责任的实现(主要介绍了公司资本形成制度、公司法人人格否认制度),(2)新公司法在公司治理方面的调整,(3)有限责任公司的设立(主要介绍了有限公司设立的程序、发起人协议和发起人责任),希望对外籍创业者了解新公司法的相关制度有所帮助。
I. Fullfillment of Limited Liability
2024 Company Law Article 2 The term "company" as mentioned in this Law refers to a limited liability company or a joint stock company formed in the territory of the People's Republic of China in accordance with this Law. There are two types of companies under the Company Law of Chinese Mainland. Either of them is subject to the doctrine of limited liability, which means that shareholders of a company shall have limited liability to the company with the amount of capital or shares they have subscribed, and the company shall be independently liable with all its property. [Emphasize added] |
For sharesholders of a company, the limited liability means the maximum losses that a shareholder has to bear are the amount he commits to invest into the company. For a company, the limited liability means that a company is an independent legal person. Therefore, the concern of realization of limited liability is actually discussing the issues as follows:
(1) How to ensure that the capital committed by shareholders is invested and used to assume liabilities for the company; and
(2) How to avoid abuse of the separate personality of the company, resulting in unfair treatment of creditors' interests.
1.How to ensure that the capital committed by shareholders is invested and used to assume liabilities for the company
In order to clarify the analysis of this issue in a simple and intuitive way, only a limited liability company is used as a sample for analysis below.
Under the 2024 Company Law, these mechanisms are required to ensure the capital contribution of a shareholder:
| Period or time point |
Mechanisms to ensure the capital contribution | During the period of company establishment | After the formation of a company | When increase of registered capital of a company |
Forms of capital contribution | Applicable | Applicable | Applicable |
Paying for the shortfall in a shareholder’s capital contribution | Applicable |
|
|
Joint and several liability of other shareholders | Applicable |
|
|
Revocation of registration of company establishment | Applicable |
|
|
Full payment of capital contribution within specified period |
| Applicable | Applicable |
Acceleration of capital contribution |
| Applicable | Applicable |
Demanding capital contribution by BOD |
| Applicable | Applicable |
Forfeiture of equities of a shareholder |
| Applicable | Applicable |
(1) Forms of capital contribution
2024 Company Law Article 48.1 A shareholder may make capital contributions in cash, in kind, or intellectual property right, land use right, equities, claims, or other non-monetary properties that may be assessed on the basis of currency and may be transferred according to the law, excluding the properties that shall not be treated as capital contributions under any law or administrative regulation. Regulation on Administration of Registration of Maret Entities Article 13.2 The form of capital contribution shall comply with the provisions of laws and administrative regulations. The shareholder of a company, the capital contributor of a non-corporate enterprise legal person or a member of a specialized farmers' cooperative (union) may not make capital contribution with labor, credit, the name of a natural person, goodwill, franchise, or property already used as security, among others. [Emphasize added] |
Cash is absolutely a form of capital contribution. In case of making the capital contribution in non-monetary properties, the following two requirements shall be satisfied: (1) assessable on the basis of currency, and (2) transferable. This is because whether or not it is valuable determines how much equity it will generate for the shareholder who use it as a capital contribution. Moreover, transferability determines the manners in which the shareholder should realize the contribution.
Typical non-monetary properties which are allowed to be use as capital contribution include: movables, intellectual properties, right of land use, equities and claims. Typical non-monetary properties that are NOT allowed to be use as capital contribution include: labor, credit, the name of a natural person, goodwill, franchise, or property already used as security.
As mentioned, the forms of capital contribution determine the ways for a shareholder to implement his obligation of capital contribution. This is summarized in the table below:
Form of Capital Contribution | Ways to Implement the Obligation of Capital Contribution |
Change of Ownership | Transfer of Control of Possession, Use, Earning, Disposal |
Cash | A shareholder shall deposit the full amount of the currency used for capital contribution into the account opened by the limited liability company in a bank. |
Non-monetary property | Movable | By delivery | The shareholders physically place specific non-monetary property in the possession, use, disposal, and earnings of the company. |
Real estate | By registration |
Equity | By amending the record of shareholders |
Claim | By assignment with the consent of the shareholders |
Intellectual property | By registration |
(2) Paying for the shortfall in a shareholder’s capital contribution & joint and several liability of other shareholders
2024 Company Law Article 50 Where, at the time of formation of a limited liability company, a shareholder fails to pay the capital contribution according to the company's bylaw, or the value of the non-monetary property as capital contribution is apparently lower than the capital contribution subscribed for, the other shareholders at the time of formation shall be jointly and severally liable to the extent of the shortfall in the shareholder's capital contribution. Partnership Enterprise Law Article 2.2 A general partnership enterprise may be formed by general partners. The partners shall bear unlimited joint and several liabilities for the debts of the partnership enterprise. If this Law has any special provisions on the way in which the general partners shall bear liabilities, these special provisions shall prevail. [Emphasize added] |
Absolutely, making full payment in time for capital contribution is an obligation of any specified shareholder. It is a commitment, and the shareholder must pay what he owes. However, under some circumstances, it may become an obligation of one among the other shareholders, a third party.
Such circumstances are two as follows: (1) at the time of formation of a limited liability company, a shareholder fails to pay the capital contribution according to the company’s bylaw, or (2) at the time of formation of a limited liability company, the value of the non-monetary property as capital contribution is apparently lower than the capital contribution subscribed for.
Under such circumstances, the other shareholders at the time of formation shall be joint and severally liable to the extent of the shortfall in the shareholder’s capital contrition. The reason for this arrangement, whereby the other shareholders at the time of formation are jointly and severally liable, is because it is generally recognized by the legislators and the courts that before the incorporation of a company as a legal entity, the promoters/shareholders were in a general partnership with each other. It is the proper meaning of general partnership that partners are jointly and severally liable to each other for all their property.
(3) Revocation of registration of company establishment
2024 Company Law Article 39 Where company formation registration is obtained by misreporting registered capital, submitting false materials, or otherwise fraudulently concealing important facts, the company registration authority shall revoke the company formation registration according to laws and administrative regulations. [Emphasize added] |
In the event that the registration of company incorporation is obtained on the basis of fraud, the registration of the incorporation shall be revoked. Here, the fraud is defined as each of misreporting registered capital, submitting false materials and otherwise fraudulently concealing important facts.
The first scenario, misreporting registered capital, is not applied to the incorporation of a limited liability company. As a shareholder of a limited liability company, he is not necessary to fully pay at the time of formation as long as such conduct is in consistent with a valid bylaw of that company.
Regarding the second scenario, false materials include the application form for incorporation, modification or deregistration, the bylaw, the resolutions of BOD or shareholders’ meetings, the certificate of capital verification, the proof of address, and the pre-license approval which are false.
As for the third scenario, “important facts” mainly refers to:
(1) whether the shareholders meet the quorum,
(2) whether there is a bylaw jointly formulated by the shareholders,
(3) whether an organizational structure consistent with a limited liability company has been set up, and
(4) whether there is a real corporate domicile, and other facts;
For a company limited by shares, mainly include:
(1) whether the promoters meet the quorum,
(2) whether the number of promoters and the share capital publicly raised in society comply with the law,
(3) whether the share issuance and preparatory matters comply with the law,
(4) whether the promoters have formulated the articles of association and adopted them by the founding general meeting,
(5) whether there is a name of the company,
(6) whether the organizational structure conforming to the requirements of the limited liability company has been set up,
(7) whether there is a real facts such as the company's domicile.
(4) Full payment of capital contribution within specified period
2024 Company Law Article 47 The registered capital of a limited liability company shall be the amount of capital contributions subscribed for by all its shareholders as registered with the company registration authority. The capital contributions subscribed for by all shareholders shall be fully paid within five years of formation of the company in accordance with the company's bylaw. Where any law or administrative regulation or any decision of the State Council provides otherwise for the paid-in registered capital, the minimum amount of registered capital of a limited liability company, or the period for shareholders to make capital contributions, such provisions shall prevail. [Emphasize added] |
Simply put, the statutory maximum contribution period is five years from the date of incorporation, and the specific period may be stipulated in the articles of incorporation; laws, administrative regulations and the State Council may set contribution periods shorter than five years for key industry sectors.
Why the statutory maximum contribution period is five years, no more no less? Legislators believe that clarifying the maximum contribution period to five years will not increase financial pressure on shareholders. This is because a statistic shows that the majority of companies in Chinese Mainland survive for less than five years, and for companies that can survive for more than five years, the completion of a full contribution should not put undue financial pressure on shareholders.
On the other hand, the Company Law allows other laws, administrative regulations and the State Council to impose shorter contribution periods for companies in specific industries.
In a nutshell, within the five-year statutory contribution limitation, the bylaw may agree on a shorter contribution period, while if the laws, administrative regulations and the State Council make provisions for a shorter contribution period, such provisions shall prevail.
(5) Acceleration of capital contribution
2024 Company Law Article 54 Where a company is unable to discharge debts when they become due, the company or creditors to whom the due debts are owed shall have the right to require shareholders who have subscribed for capital contributions to pay the capital contributions before expiration of the period of payment of capital contribution. [Emphasize added] |
Even if the period of capital contribution does not expire yet, in case of the company’s unable to discharge debts when they become due, the company or creditors to whom the due debt are owed shall have the rights to require the said unpaid-up shareholder to make full payment of his capital contribution before the expiration of his period of capital contribution. Please note that the individuals who has the right to accelerate are limited to just the company and the creditors to whom the due debts are owed, other shareholders, BOD or other individuals are not entitled to do so.
Regarding the unavailability to discharge debts when they become due, there is no uniform and clear explanation for the time being. Some scholars are of the opinion that unable to discharge debts when they become due should be interpreted in the same way as “stop payment”. Since stopping payment is not inability to pay, whether it is subjective stopping of payment or stopping of payment due to objective ability, all of them belong to the category of unable to discharge debts when they become due. We will observe the subsequent emergence of relevant rules, judicial interpretations or cases.
(6) Demanding capital contribution by BOD
2024 Company Law Article 51 After formation of a limited liability company, its board of directors shall check the capital contributions of its shareholders, and the company shall issue a written demand for payment to a shareholder, demanding payment of capital contribution, if it discovers that the shareholder has not made full payment of capital contributions on schedule according to the company's bylaw. If the board of directors fails to promptly perform its obligations specified in the preceding paragraph and causes losses to the company, any liable director shall be liable for compensation. [Emphasize added] |
Although the shareholders have an obligation to the corporation to make full and timely capital contributions, because the corporation is a constructive personality, it cannot really assert its right to demand full and timely capitalization. Therefore, the duty of verifying and calling for the shareholders' capital contributions is delegated to the board of directors, the agent of a company.
The legislator made this choice for three reasons: (1) the amendment of the 2024 Company Law, strengthen the central position of the board of directors is a very important direction of the amendment, call for contributions is both the obligation and the right to assign the duty to the board of directors to meet the direction of the amendment. (2) The board of directors, as the company's business decision-making body, has a more comprehensive grasp of the company's financial situation and capital needs and other corporate information, and has the ability to make commercial judgments, which is suitable for making reasonable business decisions. (3) Directors are subject to fiduciary duties, and directors who fail to fulfill their duties of diligence will be liable for legal responsibility, which can ensure that directors perform their duties diligently and conscientiously.
(7) Forfeiture of equities of a shareholder
2024 Company Law Article 52 When a shareholder fails to pay capital contribution as required by the company's bylaw, and the company issues a written demand for payment of capital contribution in accordance with paragraph 1 of the preceding article, it may specify a grace period for payment of capital contribution, which grace period shall not be less than 60 days from the date when the company issues the written demand. If a shareholder fails to perform the obligation of capital contribution after expiration of the grace period, the company may, under the resolution introduced by the board of directors, issue a notice of forfeiture to the shareholder in written form. The shareholder shall forfeit the equities with respect to which it has not paid the capital contribution, on the date of issuance of the notice of forfeiture. The equities forfeited 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, with the equities canceled; if no transfer or cancellation is made within six months, the other shareholders of the company shall pay the corresponding capital contribution in full in proportion to their capital contributions. If the shareholder challenges the forfeiture, it shall, within 30 days of receiving the notice of forfeiture, sue in the people's court. [Emphasize added] |
As mentioned earlier, the board of directors shall demand contributions from shareholders who have not paid the contributions in accordance with the contribution dates stipulated in the bylaw, which is the obligation and right of the board of directors. From the perspective of rights, the 2024 Company Law also gives the board of directors the right to set a grace period to demand contributions. The grace period is accompanied by very serious legal consequences for the shareholders. State in another way, the grace period shall not be less than 60 days and in case of failure to cure within this period, based on the BOD resolution, the company may give a forfeiture notice, and the shareholder shall forfeit the equities with respect to which it has not paid the capital contribution, on the date of issuance of the notice of forfeiture.
It should be emphasized that if the board elects not to specify a grace period in a call, the above legal consequences of the expiration of the grace period cannot arise and such a call will not result in the shareholder losing his rights.
When the said forfeiture occurs, the equity that is lost becomes treasury share. Since treasury shares are not included in the company's assets, they are listed as shareholders' equity in the form of a negative number. If the company holds treasury shares for a long period of time, it will lead to deviation of registered capital and asset status. Therefore, this part of equity should be dealt with as soon as possible. The 2024 Company Law provides for the following ways of disposal: transfer or corresponding reduction of registered capital and deregistration of the shareholding in accordance with the law; if the shareholding is not transferred or deregistered within 6 months, the other shareholders of the company shall pay the corresponding capital in full in accordance with the proportion of their capital contribution. If the deregistration of treasury shares is adopted, as this will lead to the reduction of registered capital, the procedures for creditor protection, such as notification of creditors and public announcements, as stipulated in the 2024 Company Law, should be fulfilled.
Last but not least, since the legal consequence of forfeiture is very serious to a shareholder, the 2024 Company Law authorizes the shareholder to file a lawsuit within 30 days from receipt of the notice of forfeiture as a remedy if he disagrees with his forfeiture.
2. How to avoid abuse of the separate personality of the company, resulting in unfair treatment of creditors' interests
2024 Company Law Article 23 Where a shareholder of a company evades the payment of its debts by abusing the independent status of legal person or the shareholder's limited liabilities, if it seriously injures the interests of any creditor, it shall bear several and joint liabilities for the debts of the company. If the shareholder uses two or more companies under its control to commit the act prescribed in the preceding paragraph, each company shall be jointly and severally liable for the debts of any of the other companies. If the shareholder of a company with only one shareholder is unable to prove that the property of the company is independent from his own property, he shall bear joint liabilities for the debts of the company. [Emphasize added] |
When the independent status of a company's legal personality and the limited liability of its shareholders are abused by the company's shareholders to the serious detriment of the interests of the company's creditors, the denial of the company's legal personality, so that the company's shareholders or other companies controlled by the company's shareholders will be held jointly and severally liable, is what we called “piercing the veil of a company” or the denial of legal personality of a company.
The 2024 Company Law provides the legal personality denial regime including vertical legal personality denial and horizontal legal personality denial. Vertical legal personality denial refers to the denial of the legal personality of a company so that the shareholders of the company are jointly and severally liable for the company's debts. Horizontal denial of legal personality refers to the denial of the legal personality of each affiliated company, so that affiliated companies are jointly and severally liable for each other's debts.
Elements of legal personality denial include: (1) the subject of the abusive behavior is the company's shareholders, (2) there are abuses of the independent status of the company's legal personality and limited liability of shareholders, such as personality mixing, excessive domination and control, and significantly insufficient capital, and (3) the abusive behavior has resulted in the evasion of debt, seriously harming the interests of the company's creditors legal consequences.
The burden of proof in one-person companies is reversed, i.e., regarding a company with only one shareholder, if the shareholder cannot prove that the company's property is independent of the shareholder's own property, he should be jointly and severally liable for the company's debts.
II. Corporate Governance
1. Legal representative
2024 Company Law Article 10 The legal representative of a company shall be the director or manager who represents the company in attending to company affairs in accordance with the company's bylaw. If a director serving as the legal representative or manager resigns, he shall be deemed to have resigned as the legal representative concurrently. If the legal representative resigns, the company shall determine a new legal representative within 30 days of resignation of the legal representative. 2024 Company Law Article 11 The legal consequences of civil activities performed by a legal representative in the name of the company shall be borne by the company. Any restriction on the power of the legal representative imposed by the company's bylaw or shareholders' meeting shall not be set up against bona fide opposite parties. Where the legal representative causes damage to any other person in the performance of duties, the company shall assume civil liability for such damage. The company may, after assuming such civil liability, claim reimbursement from the legal representative at fault in accordance with the law or its bylaws. [Emphasize added] |
Key points of the above provisions:
(1) Enlarging the scope of management who are available to be appointed as the legal representative.
(2) The resignment of a director or manager who is serving as the legal representative results in the resignment of legal representative automatically.
(3) The maximum period of absence of legal representative is 30 days of resignation of the legal representative.
(4) The relationship between the legal representative and the company is a representative relationship, not an agency relationship, and his right to represent comes from the express authorization of the Company Law, so a full power of attorney issued by the company when exercising his or her right to represent is not necessary.
(5) Restrictions on legal representation take the form of statutory limitations, constitutional limitations and corporate resolution limitations. Of these, constitutional restrictions and corporate resolution restrictions are not enforceable against bona fide counterparties as they have no legal obligation or right to review the bylaw and corporate resolution.
2. Shadow director and de facto director
2024 Company Law Article 180 Directors, supervisors, and senior executives shall have a duty of loyalty to the company, and take measures to avoid conflicts between their own interests and the interests of the company, and shall not use their powers to seek improper interests. Directors, supervisors, and senior executives shall have an obligation of diligence to the company, and exercise reasonable care that managers shall ordinarily exercise, in the best interests of the company in performing their duties. If a controlling shareholder or actual controller of the company does not serve as its director, but attends to the company's affairs, the provisions of the first two paragraphs shall apply. 2024 Company Law Article 192 Where the controlling shareholder or actual controller of a company instructs a director or officer to engage in an act against the interests of the company or shareholders, the controlling shareholder or actual controller shall be jointly and severally liable with the director or officer. 2024 Company Law Article 265.1.3 Definitions of the following terms: …(3) "Actual controller" refers to anyone who is able to hold actual control of the acts of the company by means of investment relations, agreements or any other arrangements. [Emphasize added] |
The de facto director under Article 180.3 of the Companies Act and the shadow director regime under section 192 together constitute the substantive director regime. De facto directors are also subject to a duty of loyalty and a duty of diligence.
3. Audit committee
2024 Company Law Article 69 A limited liability company may establish an audit committee composed of directors of the board of directors in accordance with the company's bylaw which exercises the functions of the board of supervisors specified in this Law, and is not required to have a board of supervisors or supervisors. Employee representatives who are members of the company's board of directors may serve as members of the audit committee. [Emphasize added] |
Compared with the existing company law, the 2024 Company Law has made significant reforms to the company supervision mechanism and reconfigured the supervision power within the company. A limited liability company may choose not to have a supervisory board, provided that the board of directors establishes an audit committee as a specialized internal body responsible for supervisory functions, and that the audit committee exercises the powers of the supervisory board.
4. Simplification of corporation organization under the two-tier system
2024 Company Law Article 75 A limited liability company that is small or has a small number of shareholders is not required to establish a board of directors, and may have one director who exercises the functions of the board of directors as provided for in this Law. The director may concurrently hold the post of the company's manager. 2024 Company Law Article 83 A limited liability company that is small or has a small number of shareholders is not required to establish a board of supervisors, and may either have one supervisor who exercises the functions of the board of supervisors specified in this Law or have no supervisor with the unanimous consent of all shareholders. 2024 Company Law Article 128 A joint stock limited company that is small or has a small number of shareholders is not required to establish a board of directors, and may have one to two directors who exercise the functions of the board of directors as provided for in this Law. The director may concurrently hold the post of the company's manager. 2024 Company Law Article 133 A joint stock limited company that is small or has a small number of shareholders is not required to establish a board of supervisors, but shall have one supervisor who exercises the functions of the board of supervisors as provided for in this Law. [Emphasize added] |
Key points:
(1) single director.
(2) single supervisor or none (with the unanimous consent of all shareholders).
(3) director concurrently holds the post of the company’s manager.
III. Corporate Establishment
1. Procedure
(1) Mandatory registration and Formation requirements
2024 Company Law Article 29.1 To form a company, an application for formation registration shall be filed with the company registration authority. 2024 Company Law Article 259 Where anyone who fails to register as a limited liability company or joint stock limited company according to law but carries out its business operations in the name of the limited liability company or joint stock limited company or who fails to register as a subsidiary of any limited liability company or joint stock limited company according to law but carries out its business operations in the name of the subsidiary of any limited liability company or joint stock limited company, the company registration authority may order him to make a rectification or close down his business, and may also impose a fine of no more than 100,000 yuan on him. Regulation on the Administration of the Registration of Market Entities Article 19 The registration authority shall conduct formal examination of application materials. If the application materials are complete and of the statutory form, the registration authority shall make confirmation and grant registration on the spot. If registration cannot be granted on the spot, registration shall be granted within three working days; if the circumstances are complicated, an extension of three working days may be made with the approval of the person in charge of the registration authority. Where the application materials are incomplete or not of the statutory form, the registration authority shall inform the applicant of all required supplements and corrections at one time. |
Generally speaking, the establishment of a company usually follows the principles of “mandatory registration” and “establishment criteria”. “Mandatory registration” means that Chinese Mainland adopts the doctrine of compulsory registration for the establishment of commercial entities; without registration, it is impossible to obtain the status of a commercial entity or to qualify for business. The principle of “formation requirements” means that the registration authority will carry out a formal examination of the application materials for the establishment of a company, confirming and registering on the spot if the application materials are complete and in conformity with the legal form.
(2) Pre-license approval & foreign investment access and negative list
2024 Company Law Article 29.2 If any law or administrative regulation provides that the formation of a company shall be subject to approval, and relevant approval formalities shall be gone through prior to the registration of the company. Foreign Investment Law Article 4 The state applies the administrative system of pre-establishment national treatment plus negative list to foreign investment. “Pre-access national treatment” as mentioned in the preceding paragraph means the treatment accorded to foreign investors and their investments no less favorable to that accorded to domestic investors and their investments at the stage of investment access; and “negative list” as mentioned in the preceding paragraph means a special administrative measure for access of foreign investment in specific fields as imposed by the state. The state accords national treatment to foreign investment outside of the negative list. The negative list shall be issued by or with the approval of the State Council. Where any international treaty or agreement concluded or acceded to by the People's Republic of China provides for any more favorable treatment in respect of access of foreign investors, the relevant provisions of the treaty or agreement may apply. |
However, prior to registration of the establishment, if it is a situation that requires the approval of the relevant authorities, approval must first be obtained. This is referred to as pre-license approval, or “license before license”.
Chinese Mainland implements a pre-access national treatment plus negative list management system for foreign investment. Pre- access national treatment means that foreign investors and their investments are given treatment no less favorable than that given to domestic investors and their investments at the stage of investment entry; while negative list refers to the special management measures for foreign investment in specific areas as stipulated by the state. Therefore, if the proposed investment industry belongs to the restrictions stipulated in the Negative List, it is necessary to apply for the approval of prior authorization related to foreign investment.
(3) Date of incorporation
2024 Company Law Article 33.1 ……The date of issuance of the company business license shall be the date of formation of the company. |
There is a common misunderstanding in practice that many people think that the date of incorporation is the date of receipt of the business license. According to the company law, the date of incorporation of the company is the date of issuance of the business license.
2. Promoter
(1) Promoters’ agreement
2024 Company Law Article 43 Shareholders at the time of formation of a limited liability company may sign a formation agreement, specifying their respective rights and obligations during the formation of the company. 2024 Company Law Article 93.2 They shall conclude a promoter's agreement to clarify their respective rights and obligations during the course of forming the company. |
Those who sign the bylaw for the purpose of establishing a company, subscribe for capital or shares in the company and perform the duties of establishing the company shall be recognized as the promoters of the company, including the shareholders at the time of the establishment of the limited liability company. Establishment agreement or promoters’ agrement refers to the agreement signed by the shareholders at the time of establishment to regulate the rights and obligations in the process of establishing a company, which is an important document in the process of establishing a company.
The shareholders of a limited liability company may or may not enter into an establishment agreement. The promoters of a joint-stock company shall enter into an establishment agreement when establishing the company.
(2) Promoter’s liability
2024 Company Law Article 44 A limited liability company shall bear the consequences of the civil activities in which shareholders at the time of formation of the company engage for formation of the company. If the company is not formed, the legal consequences shall be borne by the shareholders at the time of formation of the company; if there are two or more shareholders at the time of formation, they shall enjoy joint and several claims and bear joint and several debts. A third party shall, at its option, have the right to request the company or its shareholders at the time of formation to assume the civil liability arising from the civil activities in which the shareholders at the time of formation engage in their own name in order to form the company. If a shareholder at the time of formation causes damage to another person by performing the duty of formation of the company, the company or the shareholder not at fault may exercise recovery against the shareholder at fault after paying compensatory liability. |
The general principle that legal acts performed in the name of the company being established or the future company should be assumed by the company after its establishment is a widely accepted proposition in domestic judicial practice, and is also reflected in the Civil Code and the Judicial Interpretation of the Company Law (III), and other relevant normative documents.
However, there are several major exceptions to this principle. In terms of specific types, the legal liability to be borne by the promoter contains three categories: the promoter's liability in contract, the promoter's liability in tort, and the promoter's liability in the event of defects or failures in the establishment.
A. The promoter's liability in contract
No. | Scenario | Legal Consequence |
1 | Civil activities undertaken by promoters for the establishment of a legal person | The legal person takes the liability |
2 | Civil liability arising from civil activities undertaken by a promoter in its own name for the establishment of a legal person | The third party has the right to choose whether to claim the legal person or the promoter. |
3 | Contracts entered into by the promoter in the name of the company, if entered into for private benefit | Assumption by the promoter |
4 | Contracts entered into by the promoter in the name of the company if the company fails to be incorporated | Assumption by the promoter |
5 | Expenses and liabilities arising from the act of establishing the company if the company fails to be established for any reason | Joint and several liability of promoters |
6 | If the company fails to incorporate due to the fault of the promoters | The promoter is liable for fault |
B. The promoter's liability in tort
The promoter's liability for infringement consists of two aspects: (1) infringement against a third party (2) infringement against a company.
Infringer | Victim | Assumption of Tort Liability |
Promoter | Third party. That is, the promoter's tortious injury caused by the performance of the duties of the company's establishment. | Victims can wait until the company is formed to request the company to assume tort liability, but the company can still recover from the promoter in case the promoter is at fault. |
Promoter | Company. For example, the promoter's false capital contribution and evasion of capital contribution. | Administrative penalties |
C. The promoter's liability in the event of defects or failures in the establishment
Currently, more rules focus on the liability of promoters in case of failure to establish a company, while the establishment defects are more often left to administrative legal norms to adjust.
From the judicial decision data, the company failed to establish the legal responsibility of the promoter is more of a contractual responsibility, in practice, less controversial, the difference between the cases mainly lies in the proportion of responsibility sharing. For the establishment of the failure of the legal relationship between the promoters, the mainstream view of the decision that the promoters for the partnership relationship, and thus to determine the responsibility of the promoters.
There are two main types of defects in the establishment of a company: (1) obtaining the registration of a company by fraudulent means, and (2) circumstances under which the registration of a company may be revoked in accordance with the law.
(王乔俐律师对本文亦有贡献)