Capital contribution is an important part of the establishment of the company, a necessary element for the company to obtain an independent personality, and the basis for the company's operation and development. In addition to leading to defects in the integrity of the company's registered capital, irregular shareholder capital contributions may also lead to the instability of the company's equity structure.

1. Classification of defects in capital contribution

According to Article 27 of the Company Law (amended in 2013):

Shareholders can contribute capital in currency, or with non-monetary property such as in-kind, intellectual property rights, and land use rights that can be valued in currency and can be transferred in accordance with the law. However, laws and administrative regulations stipulate that property shall not be used as capital contribution. Non-monetary property as capital contribution shall be assessed and verified, and the value shall not be overestimated or undervalued. Where laws and administrative regulations provide for appraisal valuation, those provisions shall prevail.

According to Article 14 of the Regulations on the Administration of Company Registration (amended in 2016):

The method of capital contribution by shareholders shall comply with the provisions of Article 27 of the Company Law, but shareholders shall not contribute capital based on labor services, credit, names of natural persons, goodwill, franchise rights or property for which guarantees are established.

The above laws and regulations have made basic principled provisions on the company's capital contribution, and the main problems in the company's capital contribution in practice have also been derived from this. The so-called capital contribution defect refers to the situation where shareholders fail to contribute capital to the company in accordance with relevant laws, regulations and the provisions of the company's articles of association when the company is established or when the company increases its registered capital, which harms the interests of other shareholders, the company and the company's creditors. It is mainly divided into two categories: one is false capital contribution; First, the procedural flaws, which are as follows:

1. False capital contributions

The so-called false capital contribution refers to the behavior of shareholders violating relevant regulations when establishing or increasing the registered capital of the company, failing to contribute capital or insufficient capital, and withdrawing capital contribution after capital contribution. In practice, the main situations are as follows:

• (1) Problems in terms of capital contribution time: mainly manifested in the failure to contribute capital in time or go through the property rights transfer procedures in time.
• (2) Problems in the value of capital contribution: mainly manifested in the use of non-monetary assets to contribute capital, and the appraisal value of assets is high and there is no reasonable reason.
• (3) Problems in the ownership of capital contribution: It is mainly manifested in the unclear ownership of the assets used for capital contribution, and there are disputes or defects. If the guaranteed property is used to contribute capital; or using property that does not belong to the investor to contribute capital, etc.
• (4) Problems in the proportion of capital contribution: The main manifestation is that the proportion of capital contribution does not comply with the provisions of the Company Law and other relevant laws and regulations. For example, the 2006 Company Law stipulates: "The initial capital contribution of all shareholders of a limited liability company shall not be less than 20% of the registered capital, nor shall it be less than the statutory minimum registered capital, and the remaining part shall be paid in full by shareholders within two years from the date of establishment of the company; Among them, investment companies can pay in full within five years. ”
• (5) Transfer of capital contribution assets: It is mainly manifested in the transfer of capital contribution assets out of the company through various means after the company's shareholders fulfill their capital contribution obligations.

2. Program flaws

The so-called procedural defects refer to the violation of relevant laws and regulations in the relevant procedures of the company's shareholders' capital contribution. In practice, the main situations are as follows:

• (1) Appraisal defects: The main manifestations are that the capital contribution with non-monetary assets should be evaluated but not evaluated, or the appraisal institution does not have securities business qualifications.
• (2) Capital verification defects: mainly manifested in non-capital verification, irregular capital verification and false capital verification or the lack of securities business qualifications of the capital verification institution.

• (3) Defects in capital reduction: mainly manifested in the failure of enterprises to perform notification and announcement procedures when carrying out capital reduction.

2. Legal solution ideas

Headache doctor treats head and foot pain, and if you find a problem, you should solve the problem. By summarizing past cases, in practice, intermediaries mainly take the following measures to solve the problem of defective capital contribution:

1. Make up for capital contribution and supplementary procedures

If the capital contribution is not in place, shareholders should be required to contribute capital as soon as possible; If the property ownership is not transferred to the company in time, the transfer of rights shall be completed as soon as possible. If the shareholder fails to transfer the ownership of non-monetary assets to the company's name in accordance with relevant regulations or agreements, but the relevant assets have actually been delivered to the company for possession or use, and the shareholders do not charge relevant fees for the company's possession or use of the relevant assets, it shall generally not constitute an obstacle to listing after the shareholder transfers the ownership of the relevant assets to the company and the relevant capital verification agency issues a supplementary capital verification report. After the completion of the compensation, the company should hold a shareholders' meeting or general meeting of shareholders to review and confirm the defects in capital contribution, and make it clear that they will not pursue each other's responsibilities and jointly bear responsibility externally.

2. Capital contribution replacement

Capital contribution replacement generally refers to the replacement of defective original capital contribution assets through monetary funds, such as the original capital contribution assets have not gone through the property rights transfer procedures, or the original capital contribution assets are assets that cannot be contributed.

3. Reduce capital

Capital reduction means reducing the company's registered capital and eliminating capital contribution defects through capital reduction.

4. Handling of procedural defects

• (1) No appraisal report: Intermediaries should judge whether the failure to assess the capital contribution of non-monetary assets has led to false capital contributions and violated the principle of capital enrichment.
• (2) No capital verification report: If there is a lack of capital verification report, the intermediary can explain through payment vouchers and other materials that the company's registered capital has actually been fully paid, or a qualified capital verification agency will conduct supplementary capital verification.
• (3) The institution issuing the report is not qualified: Accountants and appraisers who carry out listing business should have securities and futures business qualifications, and if they are not qualified, they should review the reports issued by them. The appraisal or capital verification report during the reporting period needs to be reviewed, and the appraisal or capital verification report outside the reporting period needs to be reviewed if it involves a large amount of money and is serious, and the others may not be reviewed. Important subsidiary appraisal or capital verification reports need to be reviewed, and general subsidiaries may not be reviewed.

5. Obtain the certificate of the competent authority and the underlying commitment of the shareholders

Therefore, after making up for the defects in capital contribution, the company should obtain a certificate from the relevant competent authorities, making it clear that it will not be held responsible for the company's capital contribution defects. In addition, shareholders with defective capital contributions also need to issue a commitment to clearly state that any disputes or losses that may arise due to defective capital contributions will be borne by them and have nothing to do with the company.