Other BriefingsCompany Law Draft Judicial Interpretation Part II: Shareholder Capital Contribution Obligations
This is the second article in our series on the Supreme People’s Court’s draft judicial interpretation of the Company Law, released in September 2025, covering the section on China’s shareholder capital contribution obligations. Based on the previous Company Law Judicial Interpretation (III), this section refines rules on defective contributions, liability among shareholders and directors, and creditor protections, aligning judicial practice with the amended Company Law and Civil Code.
On September 30, 2025, the Supreme People’s Court (SPC) released the Interpretation of the Supreme People’s Court on Several Issues Concerning the Implementation of the Company Law of the People’s Republic of China (Draft for Comments) (the “draft judicial interpretation”), which updates and consolidates prior judicial interpretations (I–V) and aligns them with the 2024 Company Law amendments and the Civil Code.
This article is the second in our series on the draft judicial interpretation, focusing on the section entitled “Shareholder Capital Contribution Obligations.” This section, which has been built upon and expanded from the framework established in the Company Law Judicial Interpretation (III), clarifies the rules governing capital contribution performance, defective contributions, allocation of liability among shareholders, director obligations, and creditor remedies. The discussion below highlights the key provisions and their implications, without attempting to provide an exhaustive review of the entire draft.
Shareholder agreements and articles of association
Article 12 clarifies the legal effect of shareholder agreements and their interaction with the company’s articles of association (AoA). The provision addresses when a shareholder can enforce an agreement against other shareholders, and under what circumstances such agreements can affect the company itself.
The article provides that if an agreement signed by some or all shareholders is neither void nor voidable, a shareholder may request other shareholders to assume responsibility under that agreement, and the People’s Court shall support the claim. This confirms that shareholder agreements are valid and enforceable among the signatory shareholders, reflecting the principle of relativity of contracts.
However, if a shareholder claims that the agreement binds the company, the court generally shall not support the claim, except in three specific circumstances:
- Unanimous written consent – all shareholders unanimously agree in writing on a matter within the scope of the shareholders’ meeting and sign or seal the written decision;
- Legal provision – the law explicitly provides that an agreement among all shareholders can take effect against the company; or
- Corporate ratification – the company formally recognizes the agreement through a resolution, provided that such recognition does not violate mandatory legal or regulatory provisions.
This article, a newly added provision, addresses the boundary between private shareholder agreements and corporate governance rules. While shareholder agreements generally bind only the shareholders and cannot directly impose obligations on the company, Article 12 specifies three clear exceptions where such agreements may have corporate effect.
Through these rules, the provision achieves a balance between contractual autonomy and corporate structure: it preserves the enforceability of agreements among shareholders while ensuring that any extension of such agreements to the company occurs only under unanimous consent, statutory authorization, or formal corporate approval. This provides legal certainty, prevents abuse, and ensures that private agreements align with the company’s governing framework.
Contracts entered into in the name of a company in formation
Article 13 introduces updated rules governing civil activities conducted in the name of a company in formation. It consolidates and revises several provisions from the Company Law Judicial Interpretation (III) and adopts a broader concept of “founders”, which now includes:
- Shareholders at the time of establishing a limited liability company (LLC);
- Individuals who sign a company establishment agreement; and
- Promoters of a joint stock limited company.
The article provides two core rules. First, when a founder conducts civil activities in the name of a company in formation and the counterparty seeks to hold the company liable after its establishment, courts will support such claims unless the company can prove that the activity was unrelated to its establishment. This creates a rebuttable presumption that pre-establishment activities conducted in the company’s name are undertaken for the company’s benefit.
Second, if the company ultimately fails to be established, the counterparty may request that the other founders bear joint and several liability for obligations arising from the pre-establishment activity. Again, this liability can be avoided if those founders prove that the activity was unrelated to the establishment of the company.
Compared with prior interpretations, this article introduces an important refinement: both the newly formed company and the other founders may avoid liability by demonstrating a lack of connection between the disputed activity and the company’s formation. This provides a clearer boundary between legitimate pre-establishment acts carried out for the company and those undertaken by founders for personal purposes.
Valuation of non-monetary capital contributions
Article 14 consolidates and updates prior rules on how courts determine the value of non-monetary capital contributions and resolve disputes over whether such contributions meet the shareholder’s required capital amount. This provision merges and revises Articles 9 and 15 of the Company Law Judicial Interpretation (III).
The article first authorizes courts to appoint a lawfully established asset appraisal institution to assess the value of non-monetary property at the time of contribution when determining whether its actual value is significantly lower than the capital amount specified in the AoA. This clarifies that the relevant valuation point is the time the contribution is made, not when the appraisal or dispute arises.
If the contributor’s agreed valuation of the property differs from the appraisal conducted by the appointed institution, the appraisal report prevails. This rule establishes the priority of professional appraisal over private valuation arrangements between contributors and the company, providing a consistent and objective basis for courts to assess compliance with capital contribution requirements.
The article further provides that if a contributor uses legally permissible non-monetary property and the property later depreciates due to market changes or other objective factors, the court will not support the company’s request for additional contributions. This maintains the principle that post-contribution fluctuations in asset value – when not caused by the contributor – do not create new capital obligations. However, two exceptions apply: where the AoA contains different rules, or where the contributor and the company have separately agreed otherwise.
Non-monetary contributions involving property requiring registration
Article 15 updates and consolidates the rules governing non-monetary capital contributions involving immovable property and intellectual property, merging and revising Articles 8 and 10 of Company Law Judicial Interpretation (III).
The article first addresses contributions involving construction land use rights, buildings, and other fixtures attached to land. Where such property has been delivered for the company’s use but the contributor has not completed ownership registration within the period required by the AoA, the company may request that the contributor complete the registration, and courts will support the claim. Conversely, if ownership registration has been completed but the contributor has not delivered the property for company use within the stipulated timeframe, the company may demand both delivery and compensation for resulting losses.
The second provision concerns contributions involving allocated land use rights or buildings on allocated land (划拨, referring to the administrative transfer or allocation of funds, assets, or land by a government or organization without a commercial transaction), which may face legal or factual obstacles to ownership transfer. If the company requests the contributor to complete the ownership transfer and no legal or practical impediment exists, courts will support the claim. However, if such obstacles are present, courts may inform the company to amend its claim to seek alternative remedies, such as damages. If the company refuses to amend, the claim will be dismissed. This marks a shift from earlier rules that emphasized compelling transfer, now recognizing the need for alternative relief when transfer is impossible.
If an investor makes a capital contribution in the form of intellectual property that requires ownership transfer registration or approval, it shall be handled following similar rules.
Contributions of encumbered property
Article 16 governs contributions involving property subject to existing security interests, revising and expanding earlier rules under Article 8 of the Company Law Judicial Interpretation (III).
Where a contributor uses mortgaged immovable property (such as construction land use rights or buildings) as capital, the company’s request for ownership transfer is treated differently depending on the nature of restrictions:
- No contractual prohibition or restriction on transfer: the rules of Article 15(1) apply, meaning the company may request ownership transfer if legally feasible.
- Contractually restricted or prohibited transfers, and such restrictions are registered: ownership transfer requires the mortgagee’s consent. If consent is granted, transfer may proceed; if not, courts may direct the company to amend its claim, typically toward damages. If the company refuses, the claim is dismissed.
These principles extend to contributions of intellectual property or equity that are pledged or subject to preservation measures, applying the Civil Code rule of “transfer prohibited unless the pledgee consents.”
Article 16 thus clarifies that contributions of encumbered assets cannot automatically result in ownership transfer and ensures that secured creditors’ rights and legal transfer restrictions are respected.
Contributions of property without disposal rights or derived from crime
Article 17 governs situations in which a contributor uses property they do not have the right to dispose of, as well as property derived from unlawful or criminal conduct, updating Article 7 of Company Law Judicial Interpretation (III). The provision strengthens alignment between the Company Law, the Civil Code, and the criminal law system, and prevents contributors from legitimizing illicit assets through capital contributions.
Where disputes arise over whether a contributor has fulfilled their capital contribution obligations using property that they lack the right to dispose of, courts may apply Civil Code Article 311, the general rule on disposition without right. This rule provides that the true owner may recover the property, but a bona fide transferee may nevertheless acquire ownership if three conditions are met:
- The transferee acted in good faith;
- The transfer occurred at a reasonable price; and
- The asset was registered or delivered in accordance with legal requirements. If the transferee acquires ownership under these conditions, the true owner may instead claim damages from the unauthorized disposer.
Article 311 also applies by analogy to other property rights.
By incorporating Article 311, Article 17 makes clear that the risk of using property without disposal rights rests primarily on the contributor, and that the company’s ownership depends on whether the statutory conditions for good-faith acquisition are satisfied. This ensures predictability and protects innocent parties while preserving the rights of true owners.
The article further expands earlier rules by covering all forms of illegal or criminal proceeds, not only monetary assets. If such proceeds have been injected as capital and shares have been obtained, the shares must be auctioned or sold during criminal or administrative proceedings. This prevents illicit gains from being laundered into legitimate equity interests and creates a transparent mechanism for asset recovery.
Capital contributions made with claims
Article 18 introduces a new framework for contributions made in the form of claims (debts owed to the contributor by third parties).
As a general rule, the risk of non-collection of such claims is borne by the company, not the contributor. Thus, if the claim cannot be realized when due, courts will not support the company’s request to compel supplementary contributions or damages.
However, two exceptions apply:
- Where the AoA or contributor-company agreement explicitly requires the contributor to bear the risk of non-realization.
- Where the claim is fictitious or its actual value is significantly lower than the stated contribution amount.
To determine whether a claim’s value is significantly deficient, courts apply the appraisal rules of Article 14, meaning the relevant value is that determined at the time of contribution by a qualified appraisal institution.
Article 18 clarifies risk allocation for claim-based contributions and provides tailored exceptions to prevent abuse or disguised under-contribution.
Offsetting capital contributions with claims against the company
Article 19, a new provision, sets out conditions under which a shareholder may use claims it holds against the company to offset its capital contribution obligations.
Two forms of offset are permitted:
- Offsetting monetary claims against monetary contributions; and
- Offsetting monetary claims against non-monetary contributions, but only with a shareholders’ meeting resolution, and the shareholder claiming the offset must abstain from voting.
Offset cannot be used when the company is already in bankruptcy proceedings or factually insolvent, as doing so would give the shareholder an improper priority over other creditors.
In litigation, courts must verify the authenticity of the claim to prevent shareholders from fabricating debts to evade contribution obligations.
Article 19 formalizes when a claim offset is valid while preventing abusive practices that undermine creditor protection.
Burden of proof for capital contributions
Article 20 revises the burden of proof rules for disputes about whether contribution obligations have been fulfilled, updating Article 20 of the Company Law Judicial Interpretation (III).
Where there is a dispute, the contributor bears the initial burden of proving they have fully performed their capital obligations. This shifts away from the prior rule, which required the claimant to first raise reasonable doubts.
For non-monetary contributions, the contributor must prove they engaged a lawfully established appraisal institution to value the property at the time of contribution. If the company or creditors challenge the legality of the appraisal procedure or the reasonableness of the valuation, they bear the burden of proof for those specific objections.
Article 20 thus clarifies evidentiary requirements, promotes objective verification through formal appraisal, and balances obligations between contributors and those challenging the sufficiency of contributions.
Shareholders’ liability for defective capital contribution
Article 21 of the draft judicial interpretation, refined and expanded from Article 13 of the Company Law Judicial Interpretation (III), clarifies the liabilities arising when a shareholder fails to fully perform their capital contribution obligations. The company or other shareholders who have already paid in full may request the defaulting shareholder to fulfill the contribution and compensate for losses, claims that will be supported by the people’s court. Other shareholders may also claim contractual penalties or damages under the incorporation agreement. If the defaulting shareholder argues that the penalty is excessively high, the court can reduce it appropriately according to the Interpretation on the Application of the General Rules of the Civil Code (Contract Section).
If fully paid shareholders only request contractual penalties without asking for the fulfillment of the contribution obligation, the court may add the company as a third party and inform the plaintiffs to amend their claims. If they refuse, the court shall dismiss the suit.
If the company does not exercise its rights through litigation or arbitration, and as a result, its creditors cannot realize their due debts, the creditors may sue the shareholder directly. The shareholder shall bear responsibility within the scope of the unpaid contribution and the resulting loss to the company. After a capital increase, creditors may also sue shareholders who have not completed their new contributions, and any argument by the shareholder that they were not yet a shareholder when the debt was created will not be accepted in court.
Multiple creditors pursuing the same shareholder for defective capital contributions
Article 22 provides a coordinated procedural framework for situations in which multiple company creditors seek to hold the same shareholder liable for defective or incomplete capital contributions. Its purpose is to prevent inconsistent judgments, reduce duplicative litigation, and ensure orderly enforcement.
First, jurisdiction is centralized. When creditors sue a shareholder under Article 21, the competent court is the court at the company’s domicile. If multiple lawsuits involving the same shareholder are filed, the case handled by the higher-level court should proceed first. When cases are filed in the same court, they may be consolidated; if consolidation is not possible, the case that first reaches the trial stage is heard first, and the others are suspended. After a final judgment is issued in the first case, later cases must generally follow its determination of contribution liability, unless a party presents strong contrary evidence sufficient to rebut the earlier findings. This mechanism balances consistency with procedural fairness.
Second, when disputes arise during enforcement, particularly where creditors seek to add the shareholder as a judgment debtor, such objections or related litigation are handled by the enforcement court, following the same sequencing principles.
Finally, the article addresses financial preservation and execution. When multiple creditors seek property preservation measures against the same shareholder, the amount preserved cannot exceed the shareholder’s potential contribution liability and related losses. Any excess must be handled through sequential (standby) preservation measures such as waiting seizure or freezing. If multiple cases enter the enforcement phase, the first court to take enforcement action conducts execution and distributes proceeds according to statutory distribution rules.
Multiple shareholders with defective capital contributions
Under Article 23 of the draft judicial interpretation, in cases where two or more shareholders have not fully performed their capital contribution obligations, company creditors may, as stipulated under Article 21, request each shareholder to bear responsibility within the scope of their respective unpaid contributions and the losses caused to the company. The court shall support such claims, except where founders who, according to the company’s AoA, were required to make actual capital contributions at the time of establishment, and the Company Law imposes joint liability among founders under Articles 50 and 99.
Articles 50 and 99 of the Company Law provide that when a LLC or a stock company is established, if a shareholder does not make the capital contribution required under the AoA – or if a promoter fails to pay the subscribed share capital – or if the non-monetary property contributed is worth significantly less than the amount subscribed, then the other shareholders (or promoters) at the time of establishment must bear joint and several liability with that shareholder for the shortfall.
This newly added article defines the liability structure when several shareholders fail to fulfill their capital contributions. Each shareholder bears separate liability, internally apportioned according to each one’s deficiency, and externally joint and several toward creditors. The total liability is capped by the unpaid contribution and related company loss. However, founders’ joint liability under specific provisions of the Company Law remains an exception.
Acceleration of capital contribution not yet due
Article 24 of the draft judicial interpretations stipulates that when a company is objectively unable to pay its due debts and does not pursue shareholder contributions through litigation or arbitration, creditors may request shareholders who have subscribed but whose contribution period has not yet arrived to bear responsibility, as outlined in Articles 21 to 23 of the draft judicial interpretation.
During enforcement, if creditors apply to add such shareholders as judgment debtors, the court shall reject the request and instruct them to file a separate lawsuit. Appeals against this ruling follow the review procedure; direct enforcement objections shall not be accepted.
This new article elaborates on the Company Law Article 54 by specifying the conditions and procedure for accelerating not-yet-due subscribed capital contributions. These conditions are:
- The company is unable to repay its matured debts due to an objective lack of solvency;
- The company does not legally request shareholders to fulfill their capital contribution obligations through litigation or arbitration; and
- The company’s creditor requests liability from shareholders who have subscribed to capital contributions but have not yet reached the capital contribution deadline.
Restrictions on shareholder rights for failure to contribute capital
Article 25 continues the approach of earlier interpretations by affirming that a company may impose reasonable restrictions on the rights of shareholders who have not fully performed their capital contribution obligations. If the AoA or a shareholders’ meeting resolves to limit rights such as the right to dividends, pre-emptive rights, or rights to residual property, courts will not support a challenge to such restrictions. These limitations must remain proportionate to the degree of non-performance.
The article also addresses adjustments to voting rights. When a company allocates voting rights based on actual capital contributions or another standard, such a change requires approval by shareholders representing at least two-thirds of the voting rights. A shareholder seeking to invalidate such a resolution will not be supported.
Finally, when disputes arise over the validity of a company resolution under this article, courts must first establish the underlying facts, including whether the shareholder has fully contributed capital and whether meeting procedures comply with the law, before determining the resolution’s validity. The rule reinforces the principle that shareholders who fail to contribute cannot enjoy full corporate rights.
Loss of shareholder rights
Article 26, a new provision, supplements Article 52 of the Company Law by addressing the consequences and follow-up handling of a shareholder’s loss of rights due to failure to contribute capital.
Article 52 of the Company Law stipulates that if a shareholder fails to pay their capital contribution by the date stipulated in the company’s AoA, and the company issues a written demand for payment, it may specify a payment grace period of at least sixty days from the date the company issues the demand. If the shareholder still fails to fulfill their capital contribution obligation at the end of the grace period, the company may, by resolution of the board of directors, issue a notice of forfeiture to the shareholder, which shall be issued in writing. The shareholder forfeits their unpaid capital contribution shares from the date of issuance of the notice.
Under Article 26 of the draft judicial interpretation, in this situation, although a shareholder who has lost their status no longer bears contribution obligations, the company may claim damages for losses caused by the defective contribution. Second, the article provides a mechanism for dealing with the vacated equity: if the lost shares are not transferred or cancelled within six months, the company may require other shareholders to subscribe proportionally. If they refuse, the company may sue to compel subscription. Creditors do not need to wait for this six-month period and may immediately pursue other shareholders for contribution liability within their proportional shares.
Shareholders who wish to challenge the decision on the loss of shareholder rights must do so within 30 days, or the courts will not support reinstatement. Article 26 therefore, clarifies the consequences of the loss of shareholder rights, protects corporate and creditor interests, and imposes strong incentives on remaining shareholders to address defective equity promptly.
Directors’ liability for failure to enforce capital contributions
Article 27 elaborates on directors’ obligations under Company Law Article 51 to oversee and enforce capital contributions.
Article 51 of the Company Law requires the board of directors to verify the capital contributions of shareholders after the establishment of an LLC. If it is found that a shareholder has failed to pay the capital contribution stipulated in the company’s AoA on time and in full, the company shall issue a written demand for payment to the shareholder.
Meanwhile, if a director fails to fulfill the obligations stipulated in the preceding paragraph in a timely manner, causing losses to the company, the responsible director shall bear the liability for compensation.
Article 27 of the draft judicial interpretations clarifies that directors may be liable for damages to the company in several circumstances, including failure to verify whether shareholders have made their contributions, failure to issue timely written calls for overdue contributions, improper decisions regarding the loss of shareholder rights, improper handling of equity belonging to shareholders who have lost their rights (such as allowing undervalued transfers or failing to ensure payment), or other breaches of the duties of loyalty and diligence during the contribution enforcement process.
The article also limits the circumstances in which creditors may sue directors directly. As a general rule, creditors cannot bring claims against directors for losses arising from defective or incomplete contributions unless another statutory provision, such as Article 191 of the Company Law (which outlines liabilities for directors or senior managers that cause damage to others while performing his or her duties), expressly creates liability toward third parties.
This preserves the fundamental principle that directors owe fiduciary duties primarily to the company itself, and that third-party liability arises only under exceptional statutory circumstances.
Withdrawal of capital contributions
Article 28 of the draft judicial interpretation revises the definition and consequences of capital withdrawal after company establishment. Shareholders who, without legal procedures, withdraw their capital in a manner that harms the company, such as by fabricating debts or misappropriating assets, may be found to have withdrawn capital contributions. Certain acts previously classified as capital withdrawal, such as fictitious profits or abusive related-party transactions, are now redirected to be handled under the rules governing unlawful profit distribution and related-party transactions, narrowing the core concept of withdrawal of capital contributions.
If capital withdrawal occurs, the company may require the shareholder to return the withdrawn capital and compensate losses, and responsible directors, supervisors, and senior managers may bear joint liability if the shareholder cannot return the funds. They retain a right of recourse against the withdrawing shareholder.
If the company fails to act, creditors may pursue responsible parties by way of subrogation, following procedures under Articles 21 to 23. In addition, companies may reasonably restrict rights of withdrawing shareholders or even declare the loss of shareholder rights under Article 52 of the Company Law. The burden of proof lies with the party alleging withdrawal.
Illegal reduction of registered capital
Article 29 of the draft judicial interpretation provides clearer remedies for illegal capital reduction, a long-standing enforcement challenge. When a company reduces registered capital in violation of statutory procedures and creditors are harmed, creditors may request shareholders to bear liability within the scope of benefits they obtained from the reduction. They may also pursue directors or senior managers who acted with intent or gross negligence for damages. Importantly, creditors need not first seek restoration of the pre-reduction registered capital, streamlining enforcement.
Where multiple creditors pursue the same shareholder, or multiple shareholders are pursued, the consolidation and sequencing rules of Articles 22 and 23 apply. Article 29 thus supplies an efficient and coherent remedy structure for unlawful capital reduction, aligning with Company Law Article 191’s standards for managerial liability.
Impersonated shareholders
Article 30 modernizes rules on impersonated capital contributions, protecting individuals whose names are improperly used to register shares. If a person is falsely recorded as a shareholder, they may sue the company to confirm they are not a shareholder and request correction of registration, and courts must support such claims. If the impersonation causes them harm, they may also seek damages from the impersonator.
The article also insulates the impersonated individual from liability: neither the company nor its creditors may demand capital contributions or damages from someone whose identity was misused.
This provision adds a direct remedy by enabling the victims of impersonation to request their removal from registration, which has been absent from prior interpretations, and strengthens deterrence by imposing explicit compensation liability on impersonators.
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