The Company Law of the PRC, which came into effect on 1 July 2024, strengthens the supervision of shareholder’s capital contributions and explicitly specifies the legal liabilities and consequences arising from shareholder’s insufficient capital contribution. Insufficient capital contribution includes not paying capital contribution in full and on time, or the actual value of non-monetary assets served as capital contribution is significantly lower than the subscribed capital contribution. The specific regulations are as follows:

1. Liabilities of the Shareholder with Insufficient Capital Contribution
   
   According to Article 49 of the Company Law, a shareholder that fails to pay the capital contribution in full and on time shall make up for the shortfall and be liable for compensation for any losses caused to the company.
   
   In addition, according to Article 252 of the Company Law, if the initiators or shareholders of a company make false capital contributions, fail to deliver or fail to deliver monetary or non-monetary assets served as capital contributions on time, they may be subject to a fine ranging from RMB50,000 to RMB200,000.  Under serious circumstances, a fine ranging from 5% to 15% of the amount of false capital contribution or unpaid capital contribution shall be imposed. The directly responsible supervisors and other directly responsible personnel shall be subject to a fine ranging from RMB10,000 to RMB100,000.
   
   
2. Liabilities of the other Shareholders
   
   According to Article 50 and Article 99 of the Company Law, other shareholders of a limited company that should make actual capital contribution at the time of the establishment and other initiators of a joint stock limited company shall bear joint and several liability with the shareholder/initiator who fails to make actual capital contribution to the extent of the insufficient capital contribution.
   
   
3. Obligations and liabilities of Board of Directors
   
   According to Article 51 of the Company Law, upon incorporation of a limited liability company, the board of directors shall verify the shareholders’ capital contribution status. If it is found that a shareholder has not made full capital contributions in accordance with the articles of association of the company, the board of directors shall urge the company to issue a call for capital contribution in writing to the shareholder. If the foregoing obligations are not fulfilled in a timely manner, which cause losses to the company, the responsible directors shall be liable for compensation.
   
   The obligations to verify and call for capital contributions shall be fulfilled by the sole director who exercises the powers and duties of the board of directors for companies without a board of directors in accordance with the law.
   
   
4. Loss of Equity
   
   According to Article 52 of the Company Law, if a company issues a written call for capital contribution, and the shareholder fails to make capital contribution when the grace period expires, the company may, with a resolution of the board of directors, issue a notice of loss of equity to the shareholder. From the issuing date of the notice, the shareholder shall lose the equity of the unpaid capital contribution.
   
   The lost equity shall be transferred in accordance with the law, or the registered capital shall be correspondingly reduced and the equity shall be cancelled. If the transfer or cancellation is not completed within 6 months, the other shareholders of the company shall fully pay the corresponding capital according to their respective contribution ratios.
   

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