Shareholders' Responsibility To Study Defects When Financed

The capital contribution of shareholders is an important issue in the corporation law. The shareholders' capital contribution is the main source to form the corporate capital. The shareholders' contribution acts as the physical and financial basis of the corporation in terms of incorporation and existence. And the credit of capital contribution of shareholders is the foundation of the corporation's credit and reputation. But the capital contribution flaw of shareholders often occurs in reality, which may harm the interests of other shareholders, the interests of the corporation and the corporate creditors. Thus the shareholders need to bear civil liability. The civil liability for shareholders' capital contribution flaw has complication. For the sake of convenience, the shareholders can be classified into the promoters and the shareholders who were offered. The promoters and the shareholders who were offered take different civil liability. (1)The civil liability undertook by the promoters can be classified into three types: ① The shareholders who made defective capital contribution shall be liable for breach of contract to the other shareholders. ②The shareholders who made defective capital contribution shall be liable for breach of contract to the corporation; The shareholders who have made their full capital contribution have the liability to enrich the corporate capital, and the joint liability to pay compensation for the capital contribution flaw. *③The promoters shall be also liable for the capital contribution flaw to the corporate creditors. When the corporate contribution is below the statutory minimum requirement due to the insufficient contribution made by the shareholders, the defective incorporation shall be established. In this case, the incorporation shall be declared void, and the legal personality of the corporation shall be disregarded thoroughly, perpetually and fundamentally. Therefore, the shareholders shall be unlimitedly liable for the debt of the corporation. When the corporate contribution is above the statutory minimum requirement, but below the registered capital amount filed with the registration authority, and is insufficient to satisfy the minimum capital requirement demanded by the potential business risks accrued to specific industry or size of the corporation, serious under capitalization shall be deemed to exist. In this case, the doctrine of piercing corporate veil shall be applied, and the shareholders shall be held liable for the debt of the corporation. When other circumstances of insufficient contribution made by the shareholders occur, the creditors may demand such shareholders to make up the contribution to the extent of the difference between the amount of the capital already made by the shareholders and the amount of the capital the shareholder subscribed. (2)The shareholders who were offered only need bear the civil liability for their capital contribution flaw. They shall be liable for breach of contract to the other shareholders and the corporation.Chinese Company Law has played an important role for establishing a modem enterprise system, but now it can't meet the needs of the judicial practice. It is urgent to learn from foreign corporate law and to improve the civil liability system regarding the capital contribution of shareholders.