The Company Law of the PRC, which came into effect on 1 July 2024, expressly stipulates the capital contribution liabilities of the transferor and transferee after equity transfer in a limited liability company. The specific provisions are as follows:
Transfer Equity before Expiry of Capital Contribution Period
According to paragraph one of Article 88 of the Company Law, when a shareholder of a limited liability company transfers the subscribed equity that has not yet reached the deadline for capital contribution, the transferee shall firstly assume the obligation to make capital contribution. If the transferee fails to contribute the capital in full and on time upon completion of the equity transfer, the transferor shall bear supplementary liability for the part of capital contribution that the transferee fails to make on time.
Transfer Equity after Expiry of Capital Contribution Period
According to paragraph two of Article 88 of the Company Law, if a shareholder of a limited liability company transfers equity with defective capital contribution after expiry of the capital contribution period, the transferor and transferee shall assume joint and several liability to the extent of the insufficient capital contribution. If the transferee is not aware and should not be aware of the existence of defects in capital contribution, then the liability shall be assumed by the transferor.
Defective Capital Contributions include failure to make the capital contribution in full and on time, and the actual value of non-monetary assets used as capital contribution being significantly lower than the subscribed capital contribution.
Retrospective Effect of New Rules
According to the Several Provisions of the Supreme People’s Court on the Temporal Applicability of the Company Law of the PRC, which came into effect on 1 July 2024, for equity transfers that have been completed before the new Company Law came into effect and before expiry of the capital contribution period, if the transferee fails to contribute the capital on time and in full, the capital contribution liabilities of the transferor and transferee shall be subject to paragraph one of Article 88 of the new Company Law, which stipulates that the transferor shall bear supplementary liability for the part of capital contribution that the transferee fails to make on time.
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The Company Law of the PRC, which came into effect on 1 July 2024, expressly stipulates the capital contribution liabilities of the transferor and transferee after equity transfer in a limited liability company.According to paragraph one of Article 88 of the Company Law, when a shareholder of a limited liability company transfers the subscribed equity that has not yet reached the deadline for capital contribution, the transferee shall firstly assume the obligation to make capital contribution.
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