Author | Attorney Hu Riming

Introduction:Party A borrowed funds from Party B to address its working capital needs, and the two parties entered into a written loan agreement. A shareholder of Company C, which holds a 50% equity interest, affixed the company’s official seal in the guarantor section; however, no shareholders’ resolution was provided, nor was there a signature by the legal representative. After Party A became unable to repay the debt, Party B sued both the debtor and also sought to hold Company C jointly and severally liable as guarantor. The court ultimately ruled that the guarantee contract is not effective against Company C, and Party B is not entitled to require Company C to assume full indemnity. Given that the lender, Party B, failed to review the guarantee resolution, and that Company C’s management of its official seal was negligent, both parties were at fault; therefore, Company C is only liable for compensation up to 50% of the portion that Party A is unable to pay.

Despite the guarantee being documented in black-and-white and bearing a bright red official seal, the secured claim ultimately suffered a substantial reduction—rooted in one fundamental issue: Creditor B completely disregarded its statutory duty to review the company’s guarantee at the time of signing. In scenarios involving private lending, individuals lending to businesses, and inter‑enterprise fund borrowing, the vast majority of lenders harbor the misconception that the presence of an official company seal automatically validates a guarantee. Once a default occurs and litigation ensues, they are highly likely to face the risk of the guarantee being rendered invalid and their claims suffering substantial impairment.

This article, in conjunction with the Civil Code, the Company Law, and the Judicial Interpretations on the Guarantee System, systematically outlines the comprehensive due diligence obligations that creditors must fulfill when entering into loan and guarantee agreements involving corporate guarantees, thereby safeguarding the fundamental security of funds.

1. Core cognitive correction: A company seal does not equate to lawful authorization for a corporate guarantee.

Many lenders fall into a critical misconception: they believe that as long as the guarantor’s section bears the official corporate seal, the guarantee is legally binding.However,Current law has long made it clear that a company’s provision of external guarantees constitutes a significant disposition of its assets and cannot be decided solely by the legal representative or an individual shareholder based on the company seal alone.

According to Article 15 of the Company Law, when a company provides guarantees for others, it must, in accordance with its articles of association, obtain a valid resolution passed by the board of directors or the shareholders’ meeting; if the guarantee is provided for the company’s shareholders or actual controllers (i.e., an associated guarantee), such resolution may only be adopted by the shareholders’ meeting, and the board of directors has no authority to approve it. If a shareholder or the legal representative affixes the company seal to a guarantee without obtaining an internal resolution, such act constitutes an unauthorized representation. Whether the guarantee is binding on the company hinges entirely on whether the lender qualifies as a “bona fide third party.”

Article 7 of the Interpretations of the Civil Code on the Guarantee System sets forth the standard for good faith: a creditor must conduct a reasonable review of the company’s guarantee resolution and retain complete documentation of such review in order to be deemed a bona fide party, in which case the guarantee contract shall be valid. Conversely, if the creditor enters into the contract without reviewing the resolution, it shall be presumed not to be acting in good faith; the guarantee shall not be binding on the company, and liability for damages shall be allocated based on the fault of both parties, with no right to claim full joint and several liability.

In the aforementioned case, the shareholder who affixed the company seal held only a 50% stake, no shareholders’ meeting was convened, and no written resolution was issued. Furthermore, Party B did not request or verify any internal approval documents at the time of signing. This constitutes a typical failure to fulfill its duty of due diligence, ultimately resulting in the recovery of only half of the outstanding amount and leaving a substantial portion of its claim unrecoverable.

2. The first step before signing: distinguish the type of guarantee and determine the resolution requirements.

Upon receiving the company’s letter of intent for a guarantee, the creditor’s first step is to determine whether the guarantee is an affiliated guarantee or a non-affiliated guarantee, as the review standards for the two are entirely different; any confusion in this regard will render the guarantee invalid.

Related-party guarantee

If the borrower is a shareholder or the actual controller of the guarantee company, or if there is a controlling relationship between them, such guarantee shall be deemed a statutory related-party guarantee and shall be subject to the following mandatory requirements: only a resolution of the shareholders’ meeting shall be accepted, and any resolution of the board of directors shall be invalid; during voting, the related shareholder being guaranteed must recuse itself, and the resolution shall become effective only upon approval by a majority of the voting rights held by the remaining shareholders.

Practical tips to avoid pitfalls:A board resolution cannot be used in lieu of a shareholders’ resolution, nor can borrowing shareholders be permitted to participate in the voting and signing; otherwise, the resolution will suffer from a substantial procedural defect, and the court will directly determine that the creditor has failed to fulfill its duty of due diligence.

Non-affiliated guarantee

The borrower and the guarantee company have no equity or control relationship. In accordance with the guarantee company’s articles of association: if the articles stipulate that external guarantees require approval by the shareholders’ meeting, a resolution of the shareholders’ meeting shall be requested; if they stipulate that such approvals are to be made by the board of directors, a resolution of the board of directors shall be provided. If the articles do not specify, either a valid resolution of the shareholders’ meeting or the board of directors shall suffice.

Additional note:Some company charters set limits on the amount of each individual guarantee and the total annual guarantee amount. Before signing, it is essential to review the charter; if the guarantee amount exceeds these limits, even a resolution passed by ordinary vote will not be fully effective.

3. The core review checklist for signing must be complete; no item can be missing.

(I) Review of basic main materials

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1. Obtain the guarantor’s most recent business license and internal industrial and commercial records to confirm the company’s continued existence, shareholder information, and equity proportions, and verify that the identities of the shareholders who affix the seal and the legal representative match the registered information. In the aforementioned case, Party B failed to review the equity structure and was unaware that the guarantor shareholder held only a 50% stake, which did not meet the statutory threshold for a valid voting majority.

2. Request the original copy of the guarantor’s most recent articles of association, with a focus on excerpting the provisions regarding external guarantees, clearly identifying the resolution‑approval body, voting threshold, and guarantee limit, to serve as the basis for subsequent verification of resolutions.

(II) Substantive and Reasonable Review of Guarantee Resolutions

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The law only requires creditors to conduct a formal, reasonable review and does not necessitate verification of the authenticity of shareholders’ signatures or the company seal; however, all formal requirements of the resolution must be fully compliant.

1. Resolution authority alignment: For related-party guarantees, only a resolution of the shareholders’ meeting is required; for non-related-party guarantees, the resolution-making body must be consistent with the company’s articles of association.

2. Voting threshold met: For related-party guarantees, after excluding the voting rights of the related shareholders, more than half of the remaining voting rights must be in favor; for ordinary guarantees, the proportion stipulated in the company’s articles of association must be satisfied. In exceptional circumstances, if all shareholders holding more than two-thirds of the voting rights sign their consent, a formal shareholders’ resolution may not be required (this exception applies only to non-listed companies; in this case, the shareholders hold only 50% of the shares and therefore do not meet this exception).

3. Resolution Content Consistency: The resolution must specify the borrower, loan amount, loan term, and guarantee method corresponding to this particular guarantee, ensuring full consistency with the loan agreement; any discrepancies in amounts or parties involved are prohibited.

4. Signature Verification: The signatures of shareholders and directors shall match the individuals recorded in the business registration and the company’s articles of association, and no unauthorized persons shall sign on their behalf.

(III) Review of Signatures and Signing Personnel

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1. A guarantee contract must not be valid with only the company seal; the legal representative should, as a priority, be present to sign. If the contract is signed by a shareholder or an authorized representative, a separate written power of attorney, bearing the company’s official seal, must be provided, clearly specifying the scope of authorization for the guarantee.

2. Any unilateral act of affixing the company seal for signing without authorization documents or resolutions, and solely by a single shareholder, shall be strictly prohibited and deemed invalid.

(IV) Special Review of Specific Subjects

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1. Single-member limited liability company: The sole shareholder’s written consent to the guarantee is sufficient; a shareholders’ resolution is not required, but the written consent document must be retained.

2. Listed companies: The rules are the strictest—only guarantee announcements publicly disclosed by the stock exchange shall be deemed valid; any guarantees entered into privately and not supported by such announcements shall be null and void, and the company shall not be liable for damages based on fault.

3. Public-interest organizations and institutional legal persons: In principle, they may not act as guarantors; such entities’ guarantees should be directly rejected to avoid rendering the guarantee void from the outset.

The cornerstone of securing a loan is never a mere official seal, but rather a comprehensive and compliant internal guarantee resolution. In commercial lending and large‑amount private lending, never cut corners or rely on luck. Only by fully implementing the guarantee review process can a company’s guarantee truly serve as a safety net, thereby avoiding the predicament of significantly diminished creditor rights and difficulty in recovering funds even after winning a lawsuit.

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Introduction

Attorney Hu Riming

Zhiheng (Foshan) Law Firm

Areas of expertise: Criminal and civil law.

Attorney Hu Riming is a full-time lawyer at Guangdong Zhiheng (Foshan) Law Firm. He holds an undergraduate degree from Foshan University of Science and Technology and possesses both a solid foundation in legal theory and extensive practical experience. He began his professional career at the People’s Procuratorate of Nanhai District, Foshan City, where he was deeply involved in the review of criminal cases and legal supervision, systematically mastering the operational logic of the public security, procuratorial, and judicial systems as well as the core skills of criminal procedure, thereby laying a solid foundation for his subsequent practice as a lawyer.

Since commencing practice in 2022, Attorney Hu Riming has consistently focused on criminal defense and the resolution of civil and commercial disputes. In the numerous complex cases he has handled, his primary objective has been to maximize his clients’ interests, demonstrating both keen legal acumen and adept negotiation skills.

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