The limited liability system is a great invention of modern society and the logical starting point for understanding the corporate capital system. Shareholders bear limited liability up to their subscribed capital contributions, while the company bears unlimited liability with its entire assets. Corporate capital undoubtedly serves as the foundation for external credit. In designing the corporate capital system, the “Three Principles of Corporate Capital”—capital determination, capital maintenance, and capital invariability—provide the baseline that must be adhered to. The new Company Law officially came into effect on July 1, 2024, and on September 30, 2025, the Supreme People’s Court released the Interpretations on Several Issues Concerning the Application of the “Company Law of the People’s Republic of China” (Draft for Comment) (hereinafter referred to as the “Judicial Interpretation of the New Company Law (Draft for Comment)”) to solicit public opinions. Taking this opportunity, this article intends to focus on the provisions of the capital contribution system in the Judicial Interpretation of the New Company Law (Draft for Comment), exploring its design and underlying considerations.

I. Shareholders typically clarify capital contribution matters in shareholder agreements.

After a company is established, it must bear liability not only for debts incurred post-establishment but also for relevant debts arising from its incorporation. Shareholder capital contributions serve as the crucial backing for the company’s external liabilities. According to Articles 45, 46, 94, and 95 of the new Company Law, it is a mandatory provision that the registered capital, the amount of shareholder contributions/number of subscribed shares, the method of contribution, and the date of contribution (for joint-stock companies, promoters are mandated to fully pay the subscribed share capital upon the company’s establishment) be specified in the articles of association. This essentially fixes the basic framework of who contributes, with what, when, how much, and the total amount.

Regarding Who Contributes:

It is a consensus that registered shareholders make the contributions. However, controversies arising from variables such as changes in contribution subjects due to equity transfers, and discrepancies between nominal and actual contribution subjects (specifically including nominal contributions and equity entrustment), still require further response from the law and judicial interpretations.

Regarding What to Contribute:

Whether contributing monetary or non-monetary assets, the preliminary issue of whether the contributed property is legally owned arises. Specifically for non-monetary asset contributions, practical difficulties abound, such as how to evaluate and price them, how to determine actual payment, and whether encumbrances can exist.

Regarding When to Contribute:

There has been a huge leap from a one-time fully paid-in system to a fully subscribed system. The one-time fully paid-in system requires immediate and one-time full payment whether during company establishment or capital increase; the fully subscribed system places no requirements on the payment period. Between these two extremes, different schemes with varying degrees of strictness are designed by limiting the deadline, number of installments, initial payment ratio, initial payment amount, installment ratio, and amount. China’s Company Law has undergone a massive institutional shift from a one-time fully paid-in system to an installment paid-in system, to a fully subscribed system (with joint-stock companies requiring full payment), and now to the limited-period subscribed system of the new Company Law (with joint-stock companies requiring full payment). Supplemented by the system of accelerated maturity of shareholder contributions, a major transformation has occurred regarding when shareholders must contribute.

Regarding How Much to Contribute:

This is directly related to shareholder rights and is an important basis for shareholders exercising rights or having their rights restricted or deprived.

Regarding the Total Amount:

The registered capital system is a direct reflection of the principle of capital determination and is the prerequisite for the application of subsequent rules such as capital increase, capital reduction, and illicit withdrawal of capital contributions.

Although the Judicial Interpretation of the New Company Law (Draft for Comment) does not detail the aforementioned content one by one, it is quite remarkable that it centrally provides for shareholder contributions and related liabilities in Part Two. The following text will elaborate on the provisions of Part Two.

II. Clarification of Issues Related to Shareholder Contributions in the Judicial Interpretation of the New Company Law (Draft for Comment)

(I) Application Rules for Shareholder Agreements

Generally speaking, shareholder agreements are only legally binding among the shareholders. According to Article 12 of the Judicial Interpretation of the New Company Law (Draft for Comment): Agreements by all shareholders of a limited liability company not to distribute profits according to the ratio of actual capital contributions, to reduce capital in different proportions, or not to exercise preemptive rights in proportion to actual capital contributions during capital increases, as well as circumstances already stipulated by the Company Law such as shareholder meeting resolutions adopted by unanimous written consent of shareholders, are legally binding on the company. Beyond this, unless a lawful shareholder meeting resolution recognizes the shareholder agreement, the shareholder agreement is not legally binding on the company.

(II) Liability for Civil Activities Conducted in the Name of a Company in the Process of Incorporation

Article 13 of the Judicial Interpretation of the New Company Law (Draft for Comment) introduces the concept of “incorporators” to cover concepts like shareholders and promoters. When an incorporator engages in civil activities in the name of a company in the process of incorporation: if the company is not established, the incorporators generally bear joint and several liability; if the company is established, the company generally bears the civil liability. Exceptions apply if other incorporators (when the company is not established) or the company can prove that the civil activity is unrelated to the establishment of the company.

(III) Rules on Nominal Contributions

According to Article 30 of the Judicial Interpretation of the New Company Law (Draft for Comment), in cases of nominal contributions, the rights relief for the person whose name was borrowed includes two aspects: on the one hand, the person can sue the company as a defendant, requesting confirmation of non-shareholder status and demanding the registration be changed or expunged; on the other hand, the person can sue the nominal contributor (the actual investor) as a defendant, requesting compensation for damages. At the same time, the company and its creditors have no right to require the person whose name was borrowed to bear capital contribution liabilities.

(IV) Contributions with Property Without Disposal Rights or Property from Criminal Proceeds

The essence of the issue of whether property without disposal rights or property derived from criminal proceeds can be used for capital contribution lies in whether the company can acquire ownership of said property. In principle, such property cannot be used for capital contribution. However, to protect the reasonable reliance interests of the company and maintain the stability of corporate capital, if the company meets the requirements for bona fide acquisition, the contribution act is valid.

For the original right holder, according to Article 17 of the Judicial Interpretation of the New Company Law (Draft for Comment), relief can be sought by auctioning or selling off the equity in question.

(V) Refinement of Non-Monetary Asset Contributions

1. Evaluation of Non-Monetary Assets

When contributing non-monetary assets, they should be evaluated and priced. If the price evaluated by an appraisal agency differs from the price agreed upon by the contributor, the evaluated price prevails. When determining whether the value of the non-monetary asset contribution is significantly lower than the shareholder contribution amount stipulated in the articles of association, the court may commission an asset appraisal agency to evaluate the value of the property at the time of contribution. The aforementioned provision in Article 14 of the Judicial Interpretation of the New Company Law (Draft for Comment) clarifies that the validity of the appraisal agency’s evaluation is higher than that of the contributor’s agreement. However, courts face the following situations when commissioning appraisal agencies:

First, if the non-monetary asset commissioned by the court for evaluation previously only had the contributor’s agreement and no agency appraisal, it goes without saying that the commissioned agency’s conclusion takes precedence. Second, if the non-monetary asset has already been evaluated by a prior appraisal agency, there is controversy over whether the conclusion of the court-commissioned agency necessarily takes precedence over the prior agency’s conclusion: Firstly, there are differences in the professional capabilities of appraisers, and the scientific nature and rationality of the methods used by the court-commissioned appraiser are not necessarily superior to the original appraiser. If so, why negate the prior appraiser’s conclusion? Secondly, the court-commissioned agency’s evaluation of the property value “at the time of contribution” is a retrospective evaluation, prone to conclusion deviations jointly caused by the appraiser’s subjective “hindsight bias” and the lack of historical data. Finally, “evaluation” means that the prior appraiser estimated the property value based on reasonable assumptions using the information available under the conditions at that time. Therefore, expecting the prior appraiser to have an “eye of God” to accurately predict all situations is asking too much. In conclusion, it is inappropriate to assert that the conclusion of the court-commissioned appraisal agency takes precedence over the conclusion of the prior appraisal agency. It is suggested to add the phrase “the people’s court shall make a comprehensive judgment based on this” after the clause: “The people’s court… may commission a legally established asset appraisal agency to evaluate the value of the property at the time of contribution.”

When making a comprehensive judgment, the people’s court should not negate the original evaluation conclusion if subsequent force majeure or changes in circumstances lead to a significant change in the evaluated value.

Force majeure and changes in circumstances should be included in “market changes or other objective reasons” in Paragraph 3, Article 14 of the Judicial Interpretation of the New Company Law (Draft for Comment). After the contributor makes a contribution with non-monetary assets that meet statutory conditions, absent special provisions in the articles of association or other agreements with the company, the contributor of non-monetary assets shall not bear liability for the depreciation of the property caused by market changes or other objective reasons after completing the contribution.

2. Contributions of Real Estate and Intellectual Property Requiring Registration of Ownership Change or Approval

For real estate (such as construction land use rights, buildings, and other fixtures on land) and intellectual property that require registration of ownership change or approval, completing the contribution requires meeting both the “delivery” and “registration of change” elements.

According to Article 15 of the Judicial Interpretation of the New Company Law (Draft for Comment), if only the registration of ownership change is processed but the property is not delivered to the company for use, the company may demand delivery for use and claim compensation for damages.

If the property has been delivered to the company for use but the registration of ownership change has not been processed, it depends on whether the registration can be fulfilled legally or factually: If it can be fulfilled, the company may demand the processing of ownership registration; if it cannot be fulfilled (e.g., allocated land use rights or buildings thereon cannot be fulfilled legally or factually) and the company still insists on the litigation request for registration change despite the court’s clarification, it will not be supported by the court. In cases where it cannot be fulfilled, the company should claim that the contributor has not fulfilled the contribution obligation and demand that they substitute other property to complete the contribution. As for the value generated by the contributor’s property being delivered to the company for use, it can be handled separately.

3. Contributions with Encumbered Property

Property with encumbrances can only be non-monetary assets, not monetary.

Whether mortgaged real estate (such as construction land use rights, buildings, and other fixtures on land), mortgaged or pledged movable property/rights (such as intellectual property, equity), or the aforementioned property subjected to preservation measures can be used for contribution is affirmed by Article 16 of the Judicial Interpretation of the New Company Law (Draft for Comment). However, this clause addresses whether the registration of ownership change can be completed for contributions like real estate and intellectual property that require such registration. The fundamental issue of whether the contribution is deemed complete once registration is changed and delivery is made remains unresolved. This issue can further evolve depending on whether the encumbrance occurred before or after the property was evaluated and priced: If it occurred before, how should property with encumbrances be evaluated to be considered fair? If it occurred after, the encumbered property will obviously have depreciated in value compared to the unencumbered property at the time of evaluation. If the encumbrance is not lifted, how is actual payment determined? And if the encumbrance cannot be lifted, how should it be handled? Article 8 of Judicial Interpretation III of the Company Law determined that if the encumbrance could not be lifted, the contributor failed to legally and fully perform the contribution obligation. Article 16 of the Judicial Interpretation of the New Company Law (Draft for Comment) did not perfect this based on Article 8 of Judicial Interpretation III, and did not address this issue, which may lead to practical controversies. It is recommended to clarify the aforementioned issues.

According to Paragraph 1, Article 16 of the Judicial Interpretation of the New Company Law (Draft for Comment), except in cases where the mortgaged property has already undergone mortgage registration, the mortgagor and mortgagee have agreed to prohibit/restrict the transfer of the mortgaged property, and the mortgagee does not agree to the mortgaged property being used for contribution, mortgaged property used for contribution can undergo registration of ownership change and be handled according to the rules of Paragraph 1, Article 15 of the Judicial Interpretation of the New Company Law (Draft for Comment). The expression “parties” (当事人) in Paragraph 1, Article 16 is not direct enough; it is recommended to directly use “mortgagor and mortgagee.” The expression “handled by reference to Item 2 of the preceding paragraph” in Paragraph 2, Article 16 is obscure and hard to understand. Item 2 of the preceding paragraph is only one situation; while situations falling under Item 2 are handled by reference to it, how to handle situations not falling under Item 2 is not specified. It is suggested to make the expression direct and explicit.

4. Extension of Rules on Creditor’s Rights Contributions

(1) Contributor contributing claims held against third parties

According to Paragraph 1, Article 18 of the Judicial Interpretation of the New Company Law (Draft for Comment), claims against third parties used for contribution must be genuinely existing claims, not fictitious ones. As for whether the claim has matured, the type of claim (monetary or otherwise), age of the account, debtor’s creditworthiness, and whether it is a priority claim, no provisions have been made. However, the maturity date of the claim clearly needs to be within the time limit for actual payment. Whether the actual value is significantly lower than the stipulated claim evaluation price depends on whether the actual realizable value of the claim was fully considered during the evaluation. Otherwise, absent special provisions in the articles of association or an agreement between the contributor and the company to bear supplementary liability if the claim cannot be realized, the company may not demand the contributor to make up the contribution and compensate for damages when the claim cannot be realized after the fulfillment period expires.

(2) Shareholder contributing claims held against the company

A shareholder’s method of contribution to the company can be either monetary or non-monetary assets. A shareholder contributing claims held against the company implies: First, the company is already established; Second, the shareholder’s claim against the company arose after the company’s establishment. Furthermore, regardless of whether the contribution method registered in the articles of association at the time of the company’s establishment was monetary or non-monetary, it would absolutely not be a claim against the company. Therefore, a shareholder contributing claims held against the company is essentially a change to the original contribution method, involving an amendment to the articles of association. Thus, whether the shareholder’s claim against the company is used to replace a monetary contribution or a non-monetary contribution, it must be resolved by a shareholder meeting and passed by more than two-thirds of the voting rights. To prevent shareholder claims from receiving priority repayment in bankruptcy, the aforementioned rules no longer apply when the company meets the criteria for bankruptcy.

Paragraph 1, Article 19 of the Judicial Interpretation of the New Company Law (Draft for Comment) restricts the claims used by shareholders for contribution to “monetary claims,” but sets no operational procedures for “offsetting their monetary contributions,” which is likely to cause practical confusion. Furthermore, “offsetting” is a rule of transaction law, whereas changing the contribution method involves organizational law content and should follow the normative requirements of organizational law. It is recommended to modify the expression in Paragraph 1, Article 19 of the Judicial Interpretation of the New Company Law (Draft for Comment).

(VI) Accelerated Maturity of Subscribed Capital Contributions and the Burden of Proof for Actual Payment

1. Accelerated Maturity of Shareholder Subscribed Capital Contributions

As mentioned earlier, China’s Company Law has undergone a massive shift regarding when shareholders must contribute, moving from a one-time fully paid-in system to a fully subscribed system, and then to the limited-period subscribed system of the new Company Law. On the basis of establishing the limited-period subscribed system, the new Company Law further perfects the system of accelerated maturity of shareholder subscribed capital contributions.

Paragraph 1, Article 24 of the Judicial Interpretation of the New Company Law (Draft for Comment) adds the element “objectively lacks the ability to pay off” based on Article 54 of the new Company Law. However, a company lacking the ability to pay off is an objective fact in itself; there is no possibility of a company “subjectively” lacking the ability to pay off. It is recommended to delete the expression “objectively” (因客观上). Paragraph 1, Article 24 also adds the expression “and does not legally request the shareholder to perform the contribution obligation by means of litigation or arbitration.” It is more reasonable to incorporate the demands of the company’s creditors into the institutional framework of subrogation rights.

Paragraph 2, Article 24 of the Judicial Interpretation of the New Company Law (Draft for Comment) stipulates rules for adding shareholders whose contribution periods have not yet matured as persons subjected to enforcement.

A relatively mature operation has formed in practice: after the court dismisses the ruling to directly add a shareholder as a person subjected to enforcement, an enforcement objection lawsuit is filed so that the shareholder can be added for enforcement after a substantive trial. The expression in Paragraph 2, Article 24: “If the applicant for enforcement is dissatisfied with the ruling, they may apply for reconsideration to the next higher people’s court; if an enforcement objection lawsuit is directly filed, the people’s court shall not accept it” is inappropriate and recommended to be deleted. Applying for reconsideration to the next higher court after the court dismisses the ruling to directly add the shareholder as a person subjected to enforcement is meaningless. The significance of an appeal or reconsideration lies in the genuine possibility of changing the original result. The court’s dismissal of the ruling to directly add the shareholder complies with legal theory and provisions. If reconsideration cannot change any result, it is merely a pointless procedural wheel-spinning and contradicts the provisions of Paragraph 2, Article 22 of the Judicial Interpretation of the New Company Law (Draft for Comment).

2. Burden of Proof for Actual Payment

Before the 2013 revision of the Company Law, China implemented a strict registered capital actual payment and verification system. After the 2013 Company Law implemented the fully subscribed system and no longer mandated capital verification, how to determine whether shareholders had actually paid their contributions became a new issue. Article 20 of the Judicial Interpretation of the New Company Law (Draft for Comment) clarifies this issue, stipulating as follows:

When a dispute arises over whether a contribution has been made, the contributor bears the burden of proof to demonstrate that they have fully performed the contribution obligation.

For non-monetary asset contributions, the contributor should at least prove that they have commissioned an asset appraisal agency to evaluate and price the contributed property. As for the burden of proof regarding whether the appraisal procedure was legal and whether overvaluation or undervaluation exists, it is borne by the company or creditors.

(VII) Restrictions on and Deprivation of Shareholder Rights

1. Restrictions on Shareholder Rights

Shareholders must fully pay in their subscribed capital contribution amounts within the contribution period. Otherwise, the equity corresponding to the unpaid contribution may be subject to restrictions on the exercise of rights or even forfeiture.

According to Article 25 of the Judicial Interpretation of the New Company Law (Draft for Comment), the company’s articles of association and shareholder meeting resolutions can impose reasonable restrictions on the rights of shareholders who have not fully performed their contribution obligations (including the right to request profit distribution, the preemptive right to subscribe to new shares, the right to request the distribution of residual property, etc.). With a vote of more than two-thirds of the voting rights, the shareholder meeting may determine the proportion of voting rights according to the proportion of actual capital contributions (or other standards).

2. Forfeiture of Shareholder Rights

Article 52 of the new Company Law stipulates the application conditions and procedures for shareholder forfeiture. Article 26 of the Judicial Interpretation of the New Company Law (Draft for Comment) further perfects related matters following shareholder forfeiture based on this.

According to Article 26, after a shareholder’s rights are forfeited, if the forfeited equity is not transferred or canceled within six months, other shareholders shall bear the contribution obligation for the forfeited equity in proportion to their capital contributions, and other shareholders shall acquire the corresponding portion of equity after paying the corresponding contributions in full. If the forfeiture of the shareholder’s rights causes losses to the company, the forfeited shareholder shall bear liability for damages. The expression in Paragraph 2, Article 26 of the Judicial Interpretation of the New Company Law (Draft for Comment) does not clearly specify that it targets the forfeited portion of the equity, creating ambiguity; modification is recommended.

(VIII) Illegal Capital Reduction and Illicit Withdrawal of Capital Contributions

1. Illegal Capital Reduction

After the registered capital of a company is determined, the total registered capital publicized through the industrial and commercial system becomes a symbol of the company’s external capital credibility and liability-bearing capacity. Both illegal capital reduction and the illicit withdrawal of capital contributions adversely affect the company’s debt-paying ability. Therefore, the Company Law explicitly prohibits illegal capital reduction and illicit withdrawal of capital contributions and prescribes strict liability.

According to Article 29 of the Judicial Interpretation of the New Company Law (Draft for Comment), if a company illegally reduces its capital, the company’s creditors whose rights are infringed have two avenues for rights relief: First, they may request shareholders to bear liability for the company’s debts within the scope of the benefits obtained from the capital reduction. The “benefits obtained from the capital reduction” naturally include funds received, interest generated from the funds, and shareholder contributions that should have been fulfilled but were exempted. Second, they may claim that directors and senior management personnel who acted with intent or gross negligence in the illegal capital reduction bear compensation liability, thereby creating direct external legal liability for directors and senior management personnel.

2. Illicit Withdrawal of Capital Contributions

Article 53 of the new Company Law provides a relatively general outline of the illicit withdrawal of capital contributions, while Article 28 of the Judicial Interpretation of the New Company Law (Draft for Comment) makes more systematic provisions.

According to Paragraph 1, Article 28, methods such as fabricating creditor-debtor relationships, misappropriating company property, producing false financial statements to artificially inflate profits for distribution, and utilizing related-party transactions to transfer out capital contributions all constitute the illicit withdrawal of capital contributions. However, since producing false financial statements to inflate profits for distribution and using related-party transactions to transfer out contributions have been assigned specialized rules, these two methods are no longer governed by the rules on illicit withdrawal of capital contributions, but are handled according to relevant provisions on illegal profit distribution and related-party transactions. According to Paragraph 5, Article 28, the burden of proving the aforementioned facts of illicit withdrawal of capital contributions by shareholders lies with plaintiff entities such as the company and its creditors.

According to Paragraphs 2 and 4 of Article 28, if a shareholder illicitly withdraws capital contributions, the company may sue for relief and take necessary measures regarding the shareholder’s equity.

The company’s avenues for relief are as follows: First, the company may demand that the shareholder who illicitly withdrew capital return the contribution and compensate for damages. Second, the company may demand that responsible directors, supervisors, and senior executives bear joint and several liability for losses caused by the shareholder’s inability to return the contribution. After bearing liability, these executives may seek recourse against the shareholder who illicitly withdrew the capital. Following a shareholder’s illicit withdrawal of capital, the company may restrict the rights of the shareholder and apply forfeiture rules according to Articles 25 and 26 of the Judicial Interpretation of the New Company Law (Draft for Comment).

Paragraph 3, Article 28 clarifies that in cases of illicit withdrawal of capital contributions by a shareholder, if the company fails to assert its rights through litigation or arbitration, resulting in the creditor being unable to realize their matured claims against the company, the creditor may directly sue the shareholder who illicitly withdrew the capital and the responsible directors, supervisors, and senior executives as defendants, with the company as a third party, requesting that the responsible parties bear liability for the creditor’s unrealized matured claims within the scope of their respective liabilities.

III. Provisions on Liability for Defective Shareholder Contributions in the Judicial Interpretation of the New Company Law (Draft for Comment)

Paying contributions in full and on time is a basic obligation of shareholders. In a system design centered on limited liability, defective shareholder contributions will lead to an imbalance in the entire capital system. Regulating defective shareholder contribution behaviors and imposing liabilities on shareholders and at-fault directors to constrain them is a necessary choice to maintain the corporate capital system.

(I) General Provisions on Liability for Defective Shareholder Contributions

Article 21 of the Judicial Interpretation of the New Company Law (Draft for Comment) establishes corresponding rules regarding defective shareholder contributions for the company, other shareholders who have fully paid their contributions, company creditors, and new shareholders, which are quite comprehensive, as detailed below:

First, if other shareholders who have fully paid their contributions have signed an agreement with the defectively contributing shareholder stipulating liquidated damages or other liabilities, their avenues for relief are as follows:

They may request the defectively contributing shareholder to perform the contribution obligation to the company and bear losses; they may request the defectively contributing shareholder to bear liabilities such as liquidated damages to themselves. However, if they only request the defectively contributing shareholder to bear liabilities such as liquidated damages to themselves, the court may, upon the application of the parties or ex officio, add the company as a third party and clarify the need to add/change the litigation request to demand performance of the contribution obligation or bearing of liability to the company. If the other shareholders who have fully paid their contributions refuse to add or change the request, their litigation request will be dismissed by the court.

Second, if the company fails to assert liability against the defective shareholder through litigation or arbitration, rendering the creditor unable to realize their matured claim against the company, the creditor may sue the defectively contributing shareholder as a defendant and the company as a third party.

The shareholder shall bear liability to the company’s creditor within the scope of the unpaid contribution and the resulting losses caused to the company.

Third, when a shareholder fails to fully perform the contribution obligation, the company may request that shareholder to perform the contribution obligation to the company and bear the losses.

Fourth, newly added shareholders due to a capital increase after a debt is incurred,

If they make defective contributions, they may not use the defense that they had not yet become shareholders when the company’s creditor’s claim was established to evade liability to the creditor.

(II) Liability of the Same Defectively Contributing Shareholder to Multiple Creditors

Regarding cases where two or more company creditors request the same shareholder to bear liability for defective contributions, Article 21 of the Judicial Interpretation of the New Company Law (Draft for Comment) outlines provisions from jurisdiction and trial to enforcement, as detailed below:

First, the case falls under the territorial jurisdiction of the people’s court where the company is domiciled;

Second, if cases are in courts of different levels, the higher-level people’s court shall hear the case first;

Third, cases in the same court may be consolidated for trial. If they cannot be consolidated, the case with the earliest first-instance hearing shall be tried first, and the other cases shall be suspended. After the prior case renders an effective judgment, the suspended cases and other cases separately filed regarding the shareholder’s contribution liability shall, absent contrary evidence sufficient to overturn the facts established by the effective judgment requiring a legal modification, determine the shareholder’s contribution liability in accordance with the effective judgment;

Fourth, enforcement objection and enforcement objection lawsuit cases arising from adding the shareholder as a person subjected to enforcement shall be under the jurisdiction of the enforcement court, and relevant procedures shall be handled with reference to the aforementioned rules;

Fifth, if two or more company creditors take property preservation measures against the shareholder, the preserved amount is limited to the contribution liability and losses the shareholder is liable for, and any excess portion should be waitlisted. If multiple dispute cases enter the enforcement procedure, the court that first took enforcement measures shall execute them, and distribution shall be made according to the enforcement distribution procedure.

(III) Liability for Defective Contributions by Multiple Shareholders

If two or more shareholders fail to fully perform their contribution obligations, according to Article 23 of the Judicial Interpretation of the New Company Law (Draft for Comment), two situations exist:

One, if the aforementioned shareholders are shareholders of a limited liability company who should have actually paid their contributions upon the company’s establishment according to the articles of association, or promoters of a joint-stock company who failed to pay the subscribed share capital, all such shareholders bear joint and several liability to company creditors within the scope of the shortfall in shareholder contributions.

Two, if it does not fall under the aforementioned circumstance, company creditors may only request each shareholder to bear liability within the scope of their respective unpaid contributions and the resulting losses caused to the company.

(IV) Director Liability Regarding Shareholder Contributions

While granting directors more authority, the new Company Law also prescribes corresponding liabilities for directors. If directors fail to perform their duties regarding shareholder contributions, they must bear appropriate legal liabilities.

Specifically, the company may request responsible directors to bear compensation liability for damages in all of the following situations: the board of directors fails to verify the status of shareholder contributions; the board fails to issue a written call for payment in a timely manner when a shareholder fails to pay on time; the board passes a resolution on shareholder forfeiture or non-forfeiture that goes against the company’s interests; the transferee of forfeited equity fails to fully perform the contribution obligation in a timely manner; or the directors violate their duties of loyalty and diligence in the process of verifying, calling for payment, and handling forfeited equity, thereby causing losses to the company.

According to Paragraph 2, Article 27 of the Judicial Interpretation of the New Company Law (Draft for Comment), except as otherwise provided by Article 191 of the Company Law and other provisions, regarding the aforementioned liabilities of directors, if a company creditor directly sues a director as a defendant, claiming that the director should bear liability for their unrealized matured claim within the scope of the losses caused to the company, they will not be supported by the court. This reflects a prudent approach in applying the rules of director liability to third parties, which is worthy of affirmation.