Shareholders’ Rights During the First 90 Days of Establishing a Joint Stock Company
After establishing a joint stock company (JSC), founding shareholders of a JSC will usually have 90 days from the date of issuance of the Business Registration Certificate (Capital Contribution Period) to pay for the shares they registered when establishing the JSC (Registered Share). According to the Enterprise Law 2020, it is reasonable to assume that during the Capital Contribution Period, founding shareholders who have not fully paid for the Shares registered to buy will have all the rights of shareholders, including the right to transfer the unpaid Shares. However, the drafting of the 2020 Enterprise Law may give rise to the view that during the period of shareholder capital contribution, founding shareholders only have voting rights.
The ambiguity arises from two provisions in Article 113 of the Enterprise Law 2020:
Article 113.5 of the Law on Enterprises 2020 stipulates that a person contributing capital to a Joint Stock Company becomes a shareholder of the Joint Stock Company from the moment (i) that person completes the payment for Shares registered to buy and (ii) that person’s information is recorded in the shareholder register, except for the provisions in Article 113.2 of the Law on Enterprises 2020; And
Article 113.2 of the Enterprise Law 2020 stipulates that during the capital contribution period, the number of votes of shareholders will be determined based on the number of shares they have registered to buy.
Reading the two regulations, it can be argued that if a founding shareholder has not fully paid for the number of Shares registered to buy within the Capital Contribution Period, by default, the founding shareholder will not be a shareholder according to Article 113.5 of the Enterprise Law 2020, so will not have any shareholder rights (including voting rights), except for the shareholder rights given to founding shareholders according to Article 113.2 of the Enterprise Law 2020. Because of Article 113.2 of the Enterprise Law 2020. 113.2 Enterprise Law 2020 only talks about voting rights, so voting rights are the only rights granted to founding shareholders.
Such an understanding of the law is not consistent with the assumptions established in other provisions in Article 113 of the Enterprise Law 2020 and the operations of Joint Stock Companies as stipulated in other parts of the Enterprise Law 2020 in general. The above assumption is that during the Capital Contribution Period, founding shareholders will have all shareholder rights even though they have not fully paid for the Shares registered to buy. It can be found in the following regulations:
Article 113.2 of the Enterprise Law 2020 itself calls founding shareholders “shareholders” and not “capital contributors”; Therefore, it can be argued that (i) Article 113.2 of the Enterprise Law 2020 implies that even if founding shareholders have not fully paid for the Shares registered to buy, they are still considered shareholders during the Capital Contribution Period, and will therefore have all the rights. shareholders’ rights and (ii) the fact that Article 113.2 of the Enterprise Law 2020 only mentions voting rights does not limit the scope of shareholder rights granted to founding shareholders during the capital contribution period;
Article 113.4 of the Law on Enterprises 2020 requires a founding member who fails to pay the relevant registered Shares to bear the financial responsibility of the Joint Stock Company equal to the total par value of the Registered Shares until the Joint Stock Company’s charter capital is adjusted to reduce the unpaid registered Shares. By stipulating that the financial obligations of the Joint Stock Company are equal to the total par value of the Shares registered to purchase (including the number of Shares registered to purchase unpaid) for the founding shareholders, this regulation implies that the founding shareholders are considered to have paid the number of Shares registered to purchase during the Capital Contribution Period. , and therefore, are considered shareholders and have all shareholder rights during that time; In general, many problems and unsatisfactory consequences will arise in the application of the Enterprise Law 2020 if founding shareholders only have voting rights during the capital contribution period. For example, if founding shareholders do not have the right to convene a general meeting of shareholders, founding shareholders will lose important rights to protect their interests; And
What is interesting is that in Articles 47.2 and 47.5 of the Enterprise Law 2020, the founding members of a limited liability company are called members and are said to have the rights and obligations of members (not just voting rights) corresponding to the proportion of their committed capital contribution.
