Professional Interpretation

In recent years, the competition for corporate control has become more and more intense. The form of competition is no longer confined to the background, but gradually moved to the stage. In order to fight for corporate control, the disputes about the representation of corporate will caused by the internal power struggle in commercial cases are increasing. Voting right has also become the focus of contention among shareholders. If they fail to fulfill the obligation of capital contribution on schedule, there are serious differences among shareholders about whether their voting right can be limited. In the absence of special provisions in the articles of association, should shareholders vote according to the proportion of paid in capital contribution or the proportion of subscribed capital contribution?

1. In principle, the right to vote and other common interests should not be limited by the paid in capital contribution. In the absence of special provisions in the articles of association, the proportion of shareholders' subscribed capital contribution (rather than the proportion of paid in capital contribution) should be used as the basis for the exercise of the right to vote.

In the (2017) Min No.0206 Civil No. 9768 civil judgment, Article 16 of the Provisions of the Supreme People's Court on Several Issues Concerning the Application of the Company Law of the People's Republic of China (3) was quoted：

If a shareholder fails to perform or fully perform his / her obligation of capital contribution or withdraws his / her capital contribution, the company shall, in accordance with the articles of association or the resolution of the shareholders' meeting, impose reasonable restrictions on his / her rights to claim for profit distribution, preemptive subscription of new shares, residual property distribution and other shareholders' rights. If the shareholder's request is found invalid, the people's court shall not support it.

From the above provisions of the Company Law and its judicial interpretation, in principle, the self beneficial rights such as the right to request profit distribution, the right to preempt new shares and the right to request the distribution of surplus property should be limited by whether the capital contribution has been paid in, while the common beneficial rights such as the right to vote should not be limited by whether the capital contribution has been paid in. Meanwhile, the Company Law also empowers the company to make different provisions in the form of articles of association.

Therefore, the issue of whether the voting right of shareholders of a limited company is based on the actual proportion or the subscription proportion, although there are some disputes in the theoretical circles, is relatively unified in the actual cases of judicial trials, that is, in the case of no other provisions in the articles of association, the voting right should be exercised according to the subscription proportion rather than the actual payment proportion. If the shareholders want to restrain the shareholders who have not made capital contribution on schedule and restrict the exercise of their voting rights, they must make relevant provisions in advance in the articles of association.

2. Different courts' understanding of Judicial Interpretation (3) of Company Law also leads to different trial results. There are two different opinions on how to determine the nature of voting right.

The law and judicial interpretation do not clearly stipulate whether the voting right is limited if the capital contribution is not fulfilled on schedule, but the self beneficial rights such as the right to request profit distribution, the right to preempt new shares, and the right to request the distribution of surplus property should be limited by whether the capital contribution is actually paid in principle. So, is the nature of the right to vote self-beneficial or co-beneficial?

In the judgment No. 2300 of Shanghai Municipal (2010) Shanghai No.1 Civil No. 4 (Commercial) Final No. 2300, the shareholders shall exercise the voting rights according to the proportion of subscription and the failure to fulfill the obligation of capital contribution does not affect the exercise of their voting rights.

Beijing (2013) Civil Final No. 17025 judgment holds that the restrictions on the rights of shareholders without capital contribution stipulated in Judicial Interpretation (3) of the Company Law should only include the right of self-interest, and the voting right as the right of common interest can not be restricted without legal conditions, so the resolution of the shareholders' meeting can not limit the voting right of shareholders without capital contribution.

Nanjing (2012) Commercial Final No. 991 judgment is contrary to the Beijing case. It holds that the voting right is actually a kind of control right, and it also has the function of protecting the exercise and Realization of the self-interest right. It has the nature of instrument. Therefore, it can be analogized to apply the restrictions on the rights of shareholders who have not invested in the Judicial Interpretation (3) of the Company Law. The attribute of voting right is classified as self-beneficial right.

As for the court's judgments, the author would consider them as the dispute in the absence of the company articles. Therefore, the company can independently determine whether the basis of shareholders' voting right is the proportion of capital contribution or the proportion of equity. The company's articles of association can stipulate "different shares with the same money", that is, the proportion of capital contribution is not necessarily equal to the proportion of equity. In addition, the voting rights of shareholders who fail to make full payment on time can be reasonably limited in the articles of association or the resolution of the shareholders' meeting. In the absence of any articles of association, the author believes that the voting right is not limited by the failure to perform the investment on schedule. According to the judgment of Nanjing (2012) Commercial Final No. 991 judgment, it is actually an expanded interpretation of Judicial Interpretation (3) of Company Law, expanding the scope of application of self-interest.

Consequently, the author offers the following suggestions: 

1. In the articles of association of the company, it is clearly stipulated that the capital contribution agreement is not performed on schedule, so as to avoid the influence of the shareholder's voting right due to the capital contribution in the later period.

2. If there is no provision in the articles of association, the shareholders shall timely perform their capital contribution obligations, and the company shall timely notify the shareholders of their failure to pay in time. If they fail to perform in time within the specified time limit, they can protect the rights and interests of the company and maintain its normal operation in accordance with Article 17 of Judicial Interpretation (3) of Company Law.