Study On The Legal Aspects Of The Liability For Capital Contribution After The Transfer Of Equity Interests Before The Expiry Of The Capital Contribution Period

According to the Draft Revised Company Law of the People’s Republic of China published in 2021,where a shareholder transfers an equity interest for which a capital contribution has been pledged but has not yet expired,the transferee shall assume the obligation to pay such capital contribution.While this may fill the current legislative gap regarding the vesting of shareholders’ capital contributions after the transfer of equity interests that have not reached the capital contribution deadline,it still leaves the question of the liability of the transferring shareholder for the capital contribution unanswered.The implementation of the subscription system still lacks a corresponding supporting law,resulting in many problems in the application of judicial practice.This article summarises the judicial decisions on the liability for capital contribution after the transfer of equity interests for an unexpired term,analyses the main judicial decisions,draws out the main basis of the current court decisions by comparing the basis of the decisions in the typical cases,and reflects the dilemma of determining the liability for capital contribution in the transfer of equity interests for an unexpired term under the current law,in light of the lack of legal basis for the liability of the transferring shareholder for capital contribution.The current situation is that there is no legal basis for the transferring shareholder to be liable for the capital contribution.The transfer of shareholdings before the expiry of the capital contribution period is different from the transfer of shareholdings in the case of defective capital contribution by shareholders,and therefore the provisions of Articles13 and 18 of the Judicial Interpretation(III)of the Company Law cannot be applied.Although Article 3 of the Company Law recognises that a shareholder’s contribution to the company is a legal obligation,it does not therefore allocate full responsibility for the contribution after the transfer of the shareholding to the transferring shareholder.The term of shareholders’ capital contribution under the subscription system should in principle be protected and must be considered in the context of the division of liability across the board.When discussing the principles of the division of liability for capital contributions after the transfer of equity interests that have not expired,the transfer of equity interests can generally cede both the obligation and the liability for capital contributions,but in exceptional circumstances the liability for capital contributions can also be transferred to the transferee shareholder without the equity interest.As the transferring shareholder has not fully paid up the capital,the rules on the assumption of debt may apply to the transfer of equity before the expiry of the capital contribution period.In addition,although the contributory system adequately protects the interests of the transferring shareholder for the duration of the capital contribution,the value options under the contributory system should also be grasped from the perspective of protecting the interests of creditors,the interests of the company,and the interests of the transferee shareholder.The liability for capital contribution after the transfer of an equity interest before the expiry of the capital contribution period should be based on the principle that the transferee shareholder bears the liability for capital contribution and the transferring shareholder bears the liability for capital contribution as an exception,for example,where a claim has been incurred before the transfer of the equity interest,or where the shareholder has transferred the equity interest in bad faith.At the same time,specific measures to protect the interests of creditors should also be implemented at the institutional level.