Research On The Legal System Of The Forfeiture Of Shareholder Rights

The subscription system under the legal capital system requires the company to determine the total capital at the time of establishment and all shareholders to subscribe in full.The shareholders can agree on the amount and time limit of the contribution in the articles of association,which theoretically makes it possible to indefinitely extend the time for shareholders to perform the obligation of contribution.However,it cannot change the dual characteristics of both contractual and legal nature of shareholders’ contribution obligation.Shareholders still have to abide by their commitment and pay their contribution effectively.At the same time,the doctrine of capital determination also requires that the company should have the capital contribution in line with the public announcement at the beginning of the establishment,the shareholders need to complete the capital contribution within the time limit stipulated by the law or the articles of association,otherwise they will bear the adverse consequences.No matter how the capital system changes,what remains unchanged is the shareholder’s contribution obligation under the cdoctrine of capital determination.In order to solve the problem that the shareholders do not perform or fully perform the contribution,Chinese Company Law establishes the defective shareholder contribution liability system,but lacks the severe and final means to solve the conflict between the shareholders’ contribution and the shareholders’ right.Article17 of the Provsions of the Supreme People’s Court on Several Issues concerning the Application of the Company Law of the People’s Republic of China(Ⅲ)makes up for the defects of the existing liability system,but this article is actually a system of shareholder expulsion,which is relatively narrow in scope of application and limited in practice.The newly promulgated Company Law(Revised Draft)at the end of 2021 officially introduced the system of forfeiture of shareholder rights,and the Company Law(Second Review Draft)was refined and amended on the basis of the former,which is widely expected.On the basis of clarifying the system of shareholders’ forfeiture and shareholders’ expulsion,this paper tries to put forward suggestions and construct a perfect system of forfeiture of shareholder rights.In addition to the introduction and conclusion,this paper is mainly composed of the following parts:The first part discusses the necessity of introduction.Starting from the legal capital system and the three principles of capital,it makes clear the legal nature of shareholders’ contribution obligation and their liability for defective contribution when they violate it.In our current law,stockholder defects liability is relatively "gentle" and does not touch the most fundamental shareholders’ qualification and rights.The Article 17 may confuse the expulsion of shareholders with the forfeiture of shareholder rights.As two distinct systems originated from Germany,it is necessary to distinguish them from the perspective of German law.In addition,in the First and Second Review Draft of the Company Law,there are some places that can be improved on the basis of referring to the same system of the civil law system and the common law system.The second part discusses the procedure and entity conditions of the system of the forfeiture of shareholder rights.First of all,in terms of procedure,the verification and urging of the directors to the shareholders’ contribution obligation is the due meaning of their duty of diligence,which does not need to be stated in the provisions.It should be made clear that the board has an option on whether to use the system of the forfeiture of shareholder rights.As one of the most severe measures,if the shareholder’s non-payment of capital accounts for a small proportion of the company’s capital and does not affect the operation of the company,the company can make its own judgment and require the shareholder to bear other liability for defective contribution.Once the system of the forfeiture of shareholder rights is started,the Company shall issue a written demand indicating the period and the consequences of the loss of shareholders’ rights.If the shareholders still fail to contribute capital after the expiration of the period,they will directly lose their rights upon receiving the notice from the Company.Secondly,in terms of the scope of application of entity conditions,the expression that incorporated companies are also applicable to the system of the forfeiture of shareholder rights is deleted in the Second Review Draft.However,even from the authorized capital system,it is still unable to demonstrate the rationality of the deletion in the Second Review Draft.Because no matter the subscription under the legal capital system or the paid-in under the authorized capital system,it is a different legal system from the system of the forfeiture of shareholder rights.The former is an institutional arrangement to lower the threshold of company establishment and improve the operating efficiency of the company,while the latter is to solve the actual problem of shareholders’ unpaid contribution.Moreover,China has not stopped the implementation of subscription system,authorized capital system can not completely solve the current subscription system of the company’s capital dilemma,even if the legal provisions require shareholders to paid-in,there may still be unpaid situation.Referring to foreign legislation,there is no precedent to distinguish the limited liability company from the incorporated company in the application of the system of the forfeiture of shareholder rights.In practice,if there are special circumstances such as one-person limited liability company and wholly state-owned company,the system of the forfeiture of shareholder rights may be difficult to play its role.For the applicable situation,although the Second Review Draft only stipulates the "failure to pay the full amount of capital contribution on time",it should include withdrawal of capital contribution.Withdrawal of capital contribution violates the principle of capital determination in essence,and essentially does not fulfill the obligation of capital contribution,and the existing legal provisions do not distinguish the legal liability effect of two kinds of behavior.When applying the system of the forfeiture of shareholder rights,it is also necessary to consider the coordination relationship with other responsibilities.It should be clear that there is no sequence relationship between other defective contribution liability and the system of the forfeiture of shareholder rights,but the latter should not be the first choice due to its severity.In addition,the law should consider adding the former shareholder to the main body of the contribution due,and in the case of failure of shareholders to bear the right,the former shareholders should bear the supplementary responsibility within a certain period.The third part is about the reconstruction of the legal consequences.After the defective shareholders have lost their non-contribution rights,this part of the equity is temporarily owned by the company.Since there is no stockholder system in our country,the shares should be disposed of within six months.According to the doctrine of commercial externalism,regardless of the subjective attitude of the shareholder when transferring the equity of the previous stakeholder,the shareholder should be the first person responsible for the payment of the stock money owed,and then the former stakeholder.After the former shareholder has assumed the responsibility of capital contribution,he may seek compensation from the shareholders who lost the rights.If there is no former shareholder or all former shareholders cannot make up the arrears,the partial equity may be transferred and auctioned.At the time of transfer,the other shareholders of the limited liability company shall have the right of preemption under "equal conditions".If the auction proceeds exceed the amount owed,the excess amount shall not be returned to the shareholders who lost the rights;If the amount is less than the amount in arrears,the shareholders who lose the rights shall continue to bear the obligation.If the amount cannot be made up,the shareholders of the limited liability company shall pay the full amount in proportion to their capital contribution.If the unpaid shares cannot be covered by the above means within six months,the Company shall reduce the capital.Finally,the shareholders should be given the right to Sue for relief.