Key Points in Judgment
Where the articles of association only specify the capital amount subscribed by shareholders and the deadline for capital contribution, but do not discuss the circumstances where capital contribution is made by installments, it shall be rational to determine the amount of each installment and the time limit for paying installment by shareholders under the principleof supporting existence of the company and meeting actual operation needs of the company.
Case Details
In January, 2015, Yang X, Zheng X, Zhu X and a Graduate School of X University (“Graduate School”) reached an agreement to jointly invest in a Credit Management Company (“Company”) whose articles of association provide as follows: The operation term of the Company is 10 years and the registered capital is 10 million yuan, including 3.9 million yuan contributed by Yang X, 2.6 million yuan by Zheng X, 2.5 million yuan by Zhu X, and 1 million yuanby the Graduate School. The registered capital shall be subscribed by shareholders and paid in currency. All registered capital shall be paid up before May 25, 2025. The Company was established in the end of May 2015. Yang X served as General Manager responsible for leasing office, purchasing office furniture, and recruiting staff,etc. Expenses such as rent, salary and other necessary cost occurred when the Company started business. Since July 2015, Yang X had proposed many times to Zheng X and Zhu X to hold an interim meeting of shareholders, requiring shareholders to make capital contribution in order to keep the Company running. However the meeting of shareholders could not be held because of Zheng X and Zhu X. In late August 2015, the Company had to be removed from the office as rent was not paid, and the Company lack of moneywas out of business with matured debts in total amount of 123,911.93 yuan. In late October, 2015, Yang X and the Graduate School had remittedcapital to the bank account of the Company at the ratio of the capital amount subscribed by them. Yang X pled to the court to order Zheng X and Zhu X to make capital contribution at the ratio of capital amount subscribed by them to the extent ofthe matured debts.
Judgment Results
The court holds that shareholders’ obligation of capital contribution provided by the Company Law is to ensure the establishment, existence, and operation of companies, and to realize the profit of shareholders. Although the articles of association only provide the deadline of capital contribution without any agreement on the amount of each installment or the time limit of paying installments, shareholders shall pay by installments to ensure the existence of the company and to meet the actualoperation requirements of the company. Now the Company is indeficit, and Zheng X and Zhu X’s late payment of capital had significantly prejudiced the existence and operation of the Company as well as the lawful rights and interest of creditors. Zheng X and Zhu X shall pay at the ratio of capital amountsubscribed by them to the extent of matured debts.
Significance of Judgment
The Company Law has been modified in terms of corporation capital system from paid-in system to subscription system, and cancelled the requirements on deadline of capital contribution, minimum amount of capital contribution, and capital verification, which has greatly promoted the entrepreneurship of market players. In judicial practice, if the articles of association only provide the deadline for payment of subscribed capital, but without providing the amount of each installment orthe time limit for each installment payment, and when companies do not run well as expected, shareholders always refuse to make capital contribution with an excuse that the deadline for capital contribution has not been matured yet. Such negative performance leads to the close-down of companies as lack of money, which is against law-makers’ purpose of promoting entrepreneurship. The Judgment of this case has established a market rule that it shall be rationally determined the time and amount limit of each installment paid by shareholders under the principles of supporting existence of companies and meeting the actual operation requirements of companies. It provides positive guidance to the investment of market players, and keeps the Company from being closed down as its shareholders played blame game and did not make capital contribution at due time.
