Zhiheng Explains Doubts | Adjusting the period of shareholder investment is subject to capital majority decision?

Author | Lawyer Li Ci

On July 1, 2024, the new "Company Law" came into effect. On the same day, the State Council promulgated the "Regulations of the State Council on the Implementation of the Registered Capital Registration Management System of the Company Law of the People's Republic of China" (hereinafter referred to as the "Regulations") as a supporting provision of the new "Company Law". One of the main contents of the "Regulations" is to clarify the transitional arrangements for stock companies to adjust the period of subscription capital contributions.

Once the new law was promulgated, colleagues from all walks of life have analyzed and interpreted the hot issues in it. One of the issues involves the voting procedure of the shareholders' meeting to adjust the investment period of shareholders of limited liability companies. There are many opinions that the adjustment of the investment period needs to be approved by shareholders representing more than two-thirds of the voting rights.

The "basis" is clear: (1) the period of capital contribution is recorded in the company's articles of association (Article 46 of the Company Law); (2) the shareholders' meeting makes a resolution to amend the company's articles of association, which shall be approved by the shareholders representing more than two-thirds of the voting rights (Article

66(3) of the Company Law).

This article demonstrates whether the above view holds true by sharing a communique case.

referee gist

The term of the company's registered capital contribution determined by the articles of association of the limited liability company or the shareholder contribution agreement is the agreement reached between the shareholders.Except in cases where there are legal provisions or other reasonable and urgent reasons to modify the investment period, the resolution of the shareholders' meeting to modify the investment period shall be unanimously passed by all shareholders.

If the shareholders of the company abuse their controlling position and amend the investment term resolution by majority vote, harming the rights and interests of other shareholders, and the other shareholders request confirmation that the resolution is invalid, the people's court shall support it.

basic case

On July 17, 2017, the defendant Hongda Company formed a new articles of association, which stated: Article 4 Hongda Company's registered capital is 10 million yuan; Article 5 Zhangge's investment is 7 million yuan, Yao Jincheng's investment is 1.50 million yuan, Lan Xueqiu and He Zhisong each contribute 750,000 yuan.The investment time is July 1, 2037Article 9 The shareholders' meeting shall be notified to all shareholders 15 days before the meeting; Article 11... The shareholders shall exercise their voting rights according to the proportion of their capital contribution at the shareholders' meeting;Resolutions to amend the articles of association of the company, increase or decrease the registered capital, and resolutions to merge, divide, dissolve or change the form of the company must be passed by shareholders representing more than two-thirds of the voting rights of all shareholders.

On October 30, 2018, Hongda Company issued a notice to shareholders of a temporary shareholders' meeting stating that the meeting time was 2:00 pm on November 18, 2018, and the meeting place was the 10th floor of a certain number of Century Avenue in Shanghai. The items to be considered at the meeting were: to replace and elect new supervisors;Amend the articles of associationRestrict the shareholder rights of some shareholders who have not fulfilled their capital obligations; Authorize the company to take necessary measures to urge shareholders who have not fulfilled their capital obligations to pay.

On November 18, 2018, the defendant Hongda Company formed a temporary shareholders' meeting resolution, stating:There are 4 shareholders who should attend the meeting, and the actual shareholders who attend the meeting are three third parties, accounting for 85% of the total shares.，The plaintiff, Yao Jincheng, did not attend the shareholders' meeting after receiving the notice of the shareholders' meeting, nor did he entrust anyone else to attend the shareholders' meeting. The meeting was presided over by the executive director, and the shareholders at the meeting unanimously agreed to form a resolution as follows: 1. Elect He Zhisong as the company's supervisor and remove Yao Jincheng from the company's supervisory position; 2.Adoption of amendments to the bylawsThe three third parties together hold 85% of the shares of Hongda Company, and the voting rights of the representatives exceed two-thirds. The content of the above resolution complies with the provisions of the company law and the company's articles of association, and is legal and valid.

The amendment to the articles of association referred to in the second resolution of the provisional shareholders' meeting stipulates the following: Amend Article 5 of the articles of association of Hongda Company, Yao Jincheng and three third parties as shareholders of Hongda Company, from July 1, 2037 to December 1, 2018.The signature of the amendment to the articles of association is signed by Zhang Ge, a third person, as the legal representative of Hongda Company, and the signature time is November 18, 2018.

Yao Jincheng sued the court, seeking an order to confirm that the temporary shareholders' meeting resolution made by Hongda Company on November 18, 2018 was invalid.

[Views of the court of first instance]

The resolution of the provisional shareholders' meeting made by the defendant Hongda Company on November 18, 2018, against which the plaintiff Yao Jincheng appealed, contained a total of four resolutions. The shareholders participating in the voting of the resolution of the shareholders' meeting involved in the case were three third parties, of which Zhang Ge held 70% of the equity of Hongda Company and was the legal representative of Hongda Company. The three third parties held a total of 85% equity of Hongda Company. According to the articles of association of Hongda Company, it can be passedAny resolution involving major matters of Hongda Company.

However, the content of the second resolution involved in the case involves advancing the shareholders' capital contribution time stipulated in the original articles of association of Hongda Company from July 1, 2037 to December 1, 2018, and the time of formation of the resolution is November 18, 2018, that is, Hongda Company requires each shareholder to complete the payment period of registered capital from about 20 years to less than half a month, but does not explain the urgency of requiring early payment of capital contribution, etc., which is unreasonable; requiring natural persons to complete the financing of more than one million yuan in a short period of time is also not in line with common sense.

In summary, the advance of the investment period involves the basic interests of shareholders and cannot be advanced by majority decision, so the second resolution of the temporary shareholders' meeting involved is invalid.

The final judgment of the court of first instance confirmed that the second of the resolutions of the first extraordinary shareholders' meeting in 2018 made by the defendant Hongda (Shanghai) Investment Management Co., Ltd. on November 18, 2018 was invalid.

Hongda Company refused and filed an appeal.Hongda Company appealed, claiming that:The first-instance judgment confirmed that the second item of the temporary shareholders' meeting resolution made by Hongda Company on November 18, 2018 was invalid, which was an error of applicable law.The Company Law stipulates that resolutions to amend the articles of association of a company, increase or decrease the registered capital, etc. must be passed by shareholders representing more than two-thirds of the voting rights of all shareholders.

There is no legal and constitutional basis for the view that the period of capital contribution of shareholders can be modified only with the unanimous consent of all shareholders, which actually gives any shareholder one veto power. Modifying the period of capital contribution and the company's capital increase, capital reduction, merger, division, dissolution, etc. are all matters of major interest to the company and shareholders. Among them, capital increase, capital reduction and dissolution of the company are more closely related to the interests of shareholders and are more important than the capital contribution period. If the dissolution of the company also requires the unanimous consent of all shareholders, the company may never be dissolved.

Secondly, this case should not apply to the first paragraph of Article 20 and the first paragraph of Article 22 of the Company Law. The resolution of the temporary shareholders' meeting did not violate any laws or administrative regulations, and the shareholders of Hongda Company did not abuse the rights of shareholders or infringe on the rights of the company or other shareholders.

second-instance Court View

One of the main points of contention in this case is thatWhether the capital majority rule applies to the modification of the shareholder's capital contribution period？

According to the relevant provisions of the Company Law, amendments to the articles of association of the company must be approved by shareholders representing more than two-thirds of the voting rights of all shareholders. The second item of the resolution of the temporary shareholders' meeting in this case is to amend the articles of association of the company to change the time for shareholders' capital contribution from July 1, 2037 to December 1, 2018. Its essence is to advance the time limit for shareholders' capital contribution.

whileModifying the shareholders' investment period involves the interests of the company's shareholders in the investment period. It is not a general matter of amending the company's articles of association, and the capital majority rule cannot be appliedThe reasons are as follows:

First of all, our country implements the company capital subscription system. Except as otherwise provided by law, Article 28 of the Company Law of the People's Republic of China stipulates that "shareholders shall pay their respective subscribed capital contributions as stipulated in the articles of association of the company in full and on time", that is, the law grants the shareholders of the company the benefit of the capital contribution period and allows the shareholders of the company to pay the capital contribution in accordance with the capital contribution period stipulated in the articles of association.

Shareholders' capital contribution term interests are the core essence of the company's capital subscription system and the legal rights of all shareholders of the company. If the shareholders of the company are allowed to modify the capital contribution period by majority decision, the shareholders who account for the majority of the capital can modify the capital contribution period at any time, thereby depriving other small and medium shareholders of their legitimate rights and interests.

Secondly, the modification of the shareholder's capital contribution period directly affects the fundamental rights of each shareholder, which is different in nature from the company's capital increase, capital reduction, dissolution and other matters. The latter resolution matters are generally directly related to the company, but do not directly affect the inherent rights of the company's shareholders. For example, during the capital increase process, shareholders who do not agree to the capital increase have not changed their subscribed or paid-in rights and interests, and may only be diluted due to the capital increase.

whileModifying the period of shareholders' capital contribution is directly related to the vital interests of all shareholders of the company. If capital majority decision is allowed, shareholders who do not agree to advance capital contribution may be deprived or restricted because they do not advance capital contribution, which directly affects the fundamental interests of shareholdersTherefore, modifying the period of shareholders' capital contribution cannot be simply equivalent to the company's capital increase, capital reduction, dissolution, etc., nor can it simply apply the capital majority rule

Again.The period of shareholders' capital contribution refers to the unanimous agreement formed among the shareholders of the company when the company is established or the shareholders join the company as shareholders. Although the shareholders' timely capital contribution is the obligation of each shareholder to the company, it essentially belongs to the unanimous agreement among the shareholders, rather than the company's operation and management matters.The law allows companies to be autonomous, provided that they do not violate the legitimate rights and interests of others.

In the course of the company's operation, if there are circumstances stipulated by law that require each shareholder to make capital contributions in advance or accelerate the expiration, it is due to legal provisions, and it cannot be expressed by the will of the majority shareholder to change the unanimous will formed among the shareholders by means of a majority vote of capital. therefore,The capital majority rule should not apply to the modification of the shareholders' capital contribution period in this case.

Lawyer Reviews

The main appeal opinions of Hongda Company are:The Company Law stipulates that resolutions to amend the articles of association, increase or decrease the registered capital, etc. must be passed by shareholders representing more than two-thirds of the voting rights of all shareholders. If the shareholder's capital contribution period needs to be revised by the unanimous consent of all shareholders, it actually gives any shareholder one veto power. There is no legal and constitutional basis for this view.

The second-instance Court concluded that:Is the capital majority rule applicable to the modification of the period of shareholders' capital contribution? And it is demonstrated in detail from the perspective of safeguarding the term interests of shareholders' capital contribution, protecting the fundamental rights of shareholders such as dividends and decision-making rights on major matters, and safeguarding the spirit of contract among shareholdersAdjusting the shareholder investment period requires the unanimous consent of all shareholders.

Looking at it alone, Hongda Company's appeal opinion has a legal basis, and the argument of the second-instance Court can also withstand scrutiny, but why did Hongda Company ultimately lose the case?The reason is that Hongda Company confused "resolution to modify the company's articles of association" with "resolution to modify the investment period."

1. Resolutions to "amend the articles of association" and "amend a specific matter" are separate matters and shall be voted on separately.

Generally speaking, the shareholders will form a resolution to amend a specific matter before there may be a need to amend the articles of association. The need to modify the articles of association comes from the fact that the amendments are absolutely necessary items in the articles of association and must be filed through the articles of association; or although not absolutely necessary items, the shareholders' consent needs to be recorded in the articles of association; quite a few company resolutions do not need to be recorded in the articles of association.

The company law juxtaposes "amending the articles of association" with "increasing or decreasing the registered capital, merging, dividing, dissolving, changing the form of the company". It also shows the independence between "amending the articles of association" and other matters. This independence shows that the proportion of voting rights required for different matters varies according to the law and the articles of association.

2. In practice, the voting method of passing an "amendment to the articles of association" includes two meanings: "amending a specific matter" and "amending the articles of association". Whether the resolution is ultimately effective depends on the matter with a high proportion of voting rights.

Taking the election of directors and supervisors as an example, if there is no special agreement in the articles of association, then the resolution can be passed by a majority of the voting rights, but amending the corresponding content of the company's articles of association requires more than two-thirds of the voting rights to pass, so the amendment to the articles of association requires more than two-thirds of the voting rights to pass to take effect.

Take the resolution to adopt the profit distribution plan as an example. Article 210 of the Company Law clearly stipulates that if a limited liability company does not distribute profits according to the paid-in proportion, the unanimous consent of all shareholders is required. If the amendment to the articles of association is only approved by two-thirds of the voting rights, the relevant matters are likely to be invalid and not established due to violation of legal provisions and infringement of other shareholders' equity.

In this case, there are four resolutions of the temporary shareholders' meeting of Hongda Company:

(1) Elect He Zhisong as the company's supervisor and remove Yao Jincheng from the company's supervisory position;

(2) Adopt amendments to the articles of association (adjust the funding period);

(3) The shareholders' meeting decides to limit all shareholder rights (including but not limited to income distribution rights, voting rights, information rights, etc.) of Yao Jincheng until the date when Yao Jincheng fulfills all investment obligations;

(4) Take all necessary measures to require Yao Jincheng to fulfill his investment obligations.

Among them, the resolutions (1) (3) (4) are non-statutory special majority resolutions, and the relevant resolutions can be passed with half of the voting rights and do not need to be recorded in the articles of association. In the second resolution, Hongda Company replaced the voting to amend the articles of association by voting to adjust the investment period, adopted the wrong voting rights ratio, and essentially infringed the legitimate rights and interests of other shareholders, ultimately making the resolution invalid.

3. How can the company or its shareholders legally modify the period of shareholder investment or require shareholders to contribute in advance?

At present, there are no clear legal provisions, and the following methods can be considered in practice:

(1) The company provides evidence that it is willing to modify the investment period or request shareholders to invest in advanceHave legitimate and reasonable reasonsIf the company encounters a shortage of funds during the production and operation process and it is difficult to continue, in order to maintain the normal operation of the company or when it encounters a major favorable opportunity and requires a large amount of funds, even if some shareholders do not agree, the company can modify the shareholders' investment period by means of a resolution of the shareholders' meeting

(2) In the relevant documents or articles of association for the establishment of the company, the voting method and proportion of voting rights for resolutions requiring shareholders to make capital contributions in advance and modify the capital contribution period shall be clearly stipulated. Because the legitimate rights and interests of shareholders are concerned, the formation and approval of this matter should generally also beStrive for the unanimous consent of all shareholders。

lawyer

brief introduction

Lawyer Li Ci

Full-time lawyer of Zhiheng (Qianhai) Law Firm

Observer for public interest litigation of Shenzhen Pingshan Procuratorate

Focusing on civil and commercial legal practice, corporate legal risk prevention and control and compliance management, he has many years of legal work experience in large state-owned enterprises, and has rich theoretical foundation and practical experience in civil and commercial dispute resolution, corporate compliance management, and labor and personnel dispute resolution.

Center Profile

Corporate Legal Affairs Center

The company's legal affairs center is one of the professional business centers of Zhiheng System. The center adheres to the development concept of Zhiheng "Professional Prosperity, Strong Strength", and brings together professionals from Zhiheng System with deep foundation and practical experience in the field of company legal affairs.

The center consists of five professional affairs departments: shareholders' equity, corporate governance, commercial dispute resolution, corporate compliance, corporate restructuring, mergers and acquisitions and liquidation, aiming to deepen the understanding and application of the company's relevant laws and regulations, integrate the theory and practice of the company's related legal affairs, practice professional research responsibilities and missions, innovate legal service products, realize the visualization and standardization of legal services, build a first-class corporate legal service team, provide customers with high-quality and efficient corporate legal services, and fully demonstrate and enhance Zhiheng's professional strength and brand influence in the field of corporate legal services.

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