On The Limitation On The Rights Of Shareholders Failing To Make Full Capital Contribution In Limited Liability Company

With the purpose of effective operation and utilization of capitals, the CompanyLaw of the People’s Republic of China implemented as of2006applies the installmentpayment system under the paid-in system for the capital contribution by theshareholders of Limited Liability Company where the shareholders are allowed tocontribute capitals by installments. Such system not only brings convenience for theestablishment of companies, but also causes the frequent occurrence of default ofpayment of capitals by shareholders, which results in the mass occurrence of disputesconcerning the limitation of rights of shareholders. Although the Provisions of theSupreme People’s Court on Several Issues Concerning Implementation of the CompanyLaw of the People’s Republic of China (III)(the “Judicial Interpretation III) settles theissues concerning the restrictions on the rights of shareholders in the judicial practice, italso shows its omission and faultiness, which needs to be supplemented and optimizedin term of theory. In December2013, the6thmeeting of the National People’s CongressStanding Committee made amendments to the Company Law (which will be put intoimplementation as of March1,2014), which applies the subscription system for thecapital contribution by the shareholders of liability limited companies and contains nomandatory provisions on the amount of contribution, and time of contribution by theshareholders, which will cause the establishment of liability limited companies moreconvenient and at lower cost. However, since no effective credit system has beenestablished in our country, the new company law can’t settle the issues concerninginadequate contribution by the shareholders that exists in the practice, theimplementation of the subscription system will cause the solution of such issues moreurgent. Therefore, it is meaningful in term of theoretical value and practice to discussthe issues concerning the solution of the restrictions on the rights of shareholderscontributing inadequate amount of capitals to the liability limited companies.In term of research methodology, the normative analysis method, comparativeanalysis method, Empirical analysis method and law interpretation method are appliedin this paper. In term of contents, this paper analyzes systematically in details thetheories concerning the rights of shareholders, defines the restrictions that shall be imposed on the rights of shareholders not contributing adequate capitals, based on theanalysis of the active legislation and practice, this thesis proposed to better the legalsystem in order to restrict shareholder rights in case that the former fail to pay up thecapital contribution as stipulated by the articles of association. After analysis anddemonstration, it is concluded in this paper that, firstly, the restrictions shall be imposedon the rights of shareholders of liability limited companies not contributing adequatecapitals, but such restrictions shall be of temporary and periodical nature; secondly, withthe change of the capital contribution of the shareholders of liability limited companiesnot contributing adequate capitals, the restrictions on the exercise of their rights shallalso be stipulated in relevant laws and regulations; thirdly, in term of law, it is nottolerable for long term of inadequate contribution of capitals by shareholders, inaddition to the restrictions on their equity stakes, such illegal circumstance may becorrected by means of claim for default liabilities and exercise of right loss procedure.This paper targets at one form of defective capital contributions, that is, inadequatecapital contribution, as the research subject, and consider such issue in term of theliability limited companies, a form of enterprises with obvious characters based onshareholders. From point view of the dynamic change of the capital contributions by theshareholders of liability limited companies not contributing adequate capitals andaiming at the different forms of change, this paper proposes different judgmentstandards and structural design. This is the main innovation of this paper.