Study On Legal Issues Of Shareholder’s Defective Capital Contribution Under The System Of Subscription

Shareholders’ investment is the important source of a company’s capital and is also the footstone for the company’s steady running and external guarantee. Defective capital contribution by shareholders not only damages the company’s credit, but also harms the transaction safety of the market. The company law was amended in 2014 and apart from the extra stipulations on the law, administrative regulations and the State Council’s decision; it lifted restrictions on the minimum registered capital to limited liability companies and incorporated companies which were set up in a sponsoring way. It established the comprehensive subscription capital system, called off the legal procedure of capital verification and simplified the entry threshold for the market entities, but it did not mention the limitation of rights on the defective investment shareholders and their responsibilities for defective capital contribution. Although the third judicial interpretation on company law expounded the relevant responsibilities for shareholders’ defective capital contribution and the limitation of rights, some deficiencies still exist and legislation is necessary for further improvement. This paper focuses on shareholders’ defective capital contribution and puts emphasis on the analysis of its form, its legal effects, the legal liability of the relevant entities and the restrictions on the stock right of defective capital contributors. At the same time, it refers to foreign legislative experience and puts forward suggestions as to the improvement of the remedy mechanism for shareholders’ defective capital contribution, aiming at a systematic study on the problems related to it and standardizing shareholders’ investment forms in our market.This paper is divided into five parts with about 30,000 words.The first part is an introduction to the representation forms of shareholders’ defective capital contribution and its legal effects. Through the definition of defective capital contribution, it presents the forms of shareholders’ defective capital contribution. It also analyzes the legal validity of shareholders’ defective capital contribution to the shareholders’ qualifications, corporation personality and stock right transfer, that is to say, shareholders’ defective capital contribution has no impacts on the identification of shareholders’ the qualifications and the establishment of the company, the company’s personality will not be effected. If transfer of the stock right with defective capital contribution conforms to legal provisions, it will impose legal force on the people concerned.The second part discusses the legal liability of defective investment shareholders for the company. It talks about different responsibilities of defective investment shareholders for the company, creditors and other shareholders. It then analyzes the relevant responsibilities undertook by other shareholders, the company’s directors, senior managers and intermediary organizations due to shareholders’ defective capital contribution. Besides, the transferor and transferee undertake the contributive supplementary liability for the company and creditor according to “good faith” after the effective contributive capital is transferred, but the equity transfer shall not exempt the transferor from the liability for breach of contract to other shareholders.The third part discusses the limitation of rights on the defective investment shareholders. This paper expounds the legal restrictions on self-profit right and common-profit right. Self-profit right should be restricted by the law and the company’s regulations, while common-profit right should not. Besides, it also conducts a theoretical analysis of the rationality of restrictions on special common-profit right and the voting right. Besides, the shareholder expulsion system is introduced. When the shareholder makes severe defective capital contribution, the company can deprive the shareholder of qualification.The fourth part is devoted to suggestions on the improvement of the remedy mechanism for shareholders’ defective capital contribution. It proposes feasible solutions through the study of deficiencies in current laws and judicial interpretation and by referring to foreign successful experience. Its suggestions include improving responsibilities the civil liability of the defective capital contribution of the shareholder, perfecting restrictions on the right of defective investment shareholders, improving the shareholder’s expulsion and right limitation system.The fifth part is the conclusion, which is a summary of the paper’s study contents. Under the system of shareholders subscribed defective contribution shareholder eligibility will not be affected. Equity investors can freely transfer flaws, but the shareholders ’rights may be restricted. Shareholders and relevant stakeholders should also undertake the relevant legal liability for the defective contribution.