CHINA Law and Practice Contributed by: Kevin Wang, Global Law Office
the right to require the shareholders to pay the capital contributions before expiration of the period of payment of capital contribu - tion. For “the right to require the shareholders to pay the capital contributions” in the new Company Law, the shareholders could still be ordered to pay the creditors directly in the current judicial practice. • The other promoters shall be jointly and severally liable with the promoter who fails to pay the subscription in accordance with the shares they have subscribed for, or when the actual value of the non-monetary property as capital contribution is significantly lower than the the shares subscribed for. • In the case of an equity transfer where the capital contribution is not due after the implementation of the new Company Law, if the transferee fails to fully pay the capital contribution on time, the original shareholders shall bear supplementary liability to the credi - tors for the portion of the insufficient capital contribution. Shareholders’ Criminal Responsibilities in Capital Contribution According to the Criminal Law, shareholders who fail to fulfil their investment obligations may bear criminal responsibilities for making a false capi - tal contribution or withdrawing the contributed capital. According to a legislative interpretation, the rule only applies to companies that legal - ly implement the paid-in system of registered capital. Shareholders of joint stock companies shall pay more attention to this criminal liability of capital contribution. The Boundaries of Shareholders’ Rights: Piercing the Corporate Veil The shareholders shall not abuse the independ - ent legal person status of the company and
limited liabilities of shareholders to damage the interests of the company’s creditors. • Shareholders, instead of the company itself, may be directly held jointly liable if evidence shows shareholder and company personality confusion, excessive dominance or control by shareholders in company management, or that the capital is significantly insufficient. • If shareholders use two or more companies under their control to evade debts, each com - pany shall be jointly and severally liable for the debts of any company. • The company which has only one shareholder which cannot prove that the property of the company is independent of their own prop - erty, shall be jointly and severally liable for the debts of the company. In the case of company personality confusion, the denial of personality may result in the parent and subsidiary being jointly and severally liable for each other’s debts because the boundary between the shareholders’ property and the company’s property is unclear. This approach of “reversely piercing the corporate veil” should be limited to the specific situation of legal per - sonality confusion. 5.2 Role of Shareholders in Company Management Ownership of companies is somewhat separat - ed from management rights. The managers are responsible for the operation and management of the company while, as owners of the com - pany, shareholders do not normally participate directly in the daily operation and management of the company. Their management in a com - pany is indirect, which means they exercise their rights in a collective manner by participating in shareholder meetings and voting on proposals in accordance with the procedures provided by
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