On The Limitation Of Shareholders' Rights Of Defective Contribution

Capital is the basis of company's survival. It is not only the material condition of company's operation, but also the basic guatantee of the assumption of debt. Serveing as the starting point of the formation of corporate's capital system, shareholders'contribution constitutes the cornerstone of corporate property, and the necessary factors to complete corporate personality. Under the condition of shareholders'limited liability, shareholders should fulfill the funding obligation in accordance with laws and articles of association, in the hope of protecting the interests of all parties. However, in practice, defective contribution is widespread and has caused serious consequences, which not only threatens the security of transactions, but also affect the economic operation and social stability.On defective contribution, Corporate Law of the People's Republic of China has regulated the responsibilities to the creditors, the responsibilities to other shareholders of breaching the contract and the administrative responsibilities of defective contribution shareholders and the company. However, there isn't any regulation on the influence defective contribution would make to the rights of shareholders. Current theoretical research also focus on the responsibility of breaching the contract. In regard to the questions such as whether the defective investor could obtain the shareholder qualification, how to limit the rights of defective investors and so on, Corporate Law of the People's Republic of China has not regulated clearly and theories are divergent, which makes it difficult to solve the practical problems. Given this consideration, the focus of this paper is the exercise of shareholders'rights of defective contribution.The author considers the shareholder qualification as the entry point, on the basis of analyzing the existing legislation, make comment on the latest relevent provisions of the Judicial Interpretation Three of the Corporate Law of the People's Republic of China, and put forward the loopholes in regulations on the rights of defective investors. Based on foreign legislation, the shallow opinion about the solution of these problems will be brought forward.Chapter 1 provides the basic definition of defective contribution. To begin with the concept of defective contribution, relevant provisions of China's Corporate Law have implicated the understanding of this contribution situation, even though there is no clear definition in the provisions. According to different classification criteria, defective contribution could be divided into different shapes. From the aspect of quantity and quality of contribution as well as the objective and subjective factors of investors, defective contribution is divided into defective in quantity——that is insufficient contribution, defective in quality——that is inauthentic contribution, defective in subjective factors which include delay contribution, false contribution and contributed capital withdrawal and defect in objective factors, including unable to invest for vitual or legal reasons. This Chapter ends with the analysis of the essence of defective contribution.Chapter 2 is about the relationship between defective contributions with shareholder qualification. Firstly, starting with the two theories in cognizance shareholders'qualification, the standards of cognizance is analyzed. Secondly, the viewpoint that defect investors could not obtain the shareholder qualification will be reviewed form the aspect of national legislations and academic standpoints. The same research method is used to analyze the opposite viewpoint. Finally, it is concluded that defective contribution will not affect the acquisition of shareholders'qualification though the assessment of theoretical arguments, theoretical development and practical approach.Chapter 3 focuses on shareholders'rights and obligations of defective contribution. Firstly, on the requirements of shareholders'authority, the balance of rights and obligations, the principle of equality of shareholders, the principle of good faith and current legislation, the limitation of shareholders rights is legitimacy and the obligations should not be exempted. Secondly, the principle of distinction, which refers to the distinguish between different contribution forms, different rights and different basis of rights, should be observed in limiting shareholders'rights. Finally, according to current legislation, the limitation to the right of distribution of property, stock options, first refusal, voting rights and the right to transfer of shares will be emphasized, and the provisions should be interpreted as exercising these rights in accordance with the paid proportion of contribution. The change of exercising ways of rights though common agreement does not precluded.Chapter 4 depicts the systematic establishment of the limitation to shareholders'rights of defective contribution. Firstly, the loopholes existing in legislation are demonstrated as well as the development to these loopholes. In the aspect of legislation, in addition to current regulated rights, what rights should also be limited are discussed. Analyzing the classification of shareholders'rights and contribution obligation, from the theoretical point of view, it should be inclined to adopt the limitation from the distinction of proportional shares and non-proportional shares, based on the paid-in capital ratio. In consideration of the limitation scope of the Articles of Association to shareholders'rights and the effectiveness, the compel lent provisions of shareholders'rights should not be limited. On the question whether shareholders of defective contribution could implement their voting rights in Assembly Decision of Shareholder, the author holds the idea that these shareholders could implement their voting rights in accordance with their paid-in capital ratio, by analyzing the characteristics and regulations of Corporate Law. Finally, the paper provides with the discussion of the consequent legal issues of defective contribution. The author considers the time of making up for the contribution as the starting point of the recovery of shareholders'rights, by thinking over the nature of liability the defect-investing shareholders take and the relationship between the liabilities with the limitation of shareholders'rights. Analyzing the necessity of removing shareholders'qualification and feasibility of drawing lessons from foreign legislations, the removal system should be introduced to lift the qualification of shareholders who do not make up for the defective contribution. Finally, relevant program provisions of the Supreme Court"Regulations on the Application of Corporate Law of People's Republic of China"are discussed together with the author's suggestions.