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March 2026
Interpretation of Key Provisions on Shareholders' Contribution Liability under the Draft Judicial Interpretation of the New Company Law
The Supreme People's Court issued the Interpretation on Several Issues Concerning the Application of the Company Law of the People's Republic of China (Draft for Comments) (hereinafter referred to as the "Draft Judicial Interpretation") on September 30, 2025, which makes important revisions to shareholders' contributions and liabilities related to contributions. This article focuses on Article 12 on shareholders' agreements and the articles of association, Article 18 on the contribution of claims against others, and Article 19 on the set-off of shareholder's claims against the company, analyzing their institutional innovations, legal controversies, and practical implications.
I. Article 12: Boundary of the Effect of Shareholders' Agreements Against the Company
The effect of shareholders' agreements on the company has long lacked clear rules. Article 12 of the Draft Judicial Interpretation clarifies for the first time that a shareholders' agreement shall, in principle, bind only the shareholders concluding such an agreement, but may take effect against the company under three exceptions, including where all shareholders unanimously express written consent on matters of the shareholders' meeting resolution, where laws clearly provide that such an agreement takes effect against the company, and where the company explicitly recognizes it in the form of a resolution.
This provision reflects the drafters' effort to balance freedom of contract and corporate governance stability. From a legal perspective, a shareholders' agreement is essentially a civil contract and must follow the principle of privity of contract. However, since its content often involves the corporate governance structure, conflicts with company law rules are unavoidable.
More controversial is the circumstance where the company explicitly recognizes it in the form of a resolution. Whether such recognition is made by the board of directors or by the shareholders' meeting, both present defects. If recognition is made by the board of directors, such authorization would be excessive, because shareholders' agreements often involve the company's fundamental governance structure, and their effect is no less significant than amendments to the articles of association, and therefore should not be determined by the board of directors. If recognition is made by the shareholders' meeting, although procedurally legitimate, a shareholders' agreement, as a contract, requires the consent of all parties for amendment, whereas the articles of association may be amended by majority resolution. This difference may result in the company being constrained by the shareholders' agreement. Where circumstances change and amendment is necessary, even if the shareholders' meeting adopts a majority resolution, the shareholders' agreement cannot be amended, thereby impairing the company's operational flexibility. In addition, agreements concluded among some shareholders, once explicitly recognized by the company in the form of a resolution, may be used by controlling shareholders to impose arrangements agreed upon by some shareholders on all shareholders.
From a practical perspective, shareholders' agreements are confidential and are not subject to filing or registration, and new shareholders often have no means to know their existence. However, under this Article, once the company explicitly recognizes the agreement in the form of a resolution, the shareholders' agreement takes effect against the company, and new shareholders may be indirectly bound. In practice, it is advisable for the company to incorporate the content of such an agreement into the articles of association or shareholders' meeting resolutions, rather than merely recognizing the agreement itself, so as to avoid potential disputes.
II. Article 18: Risk Allocation for Contribution of Claims Against Others
Contribution of claims against others was formally recognized in the 2023 Company Law. Article 18 of the Draft Judicial Interpretation further clarifies the allocation of risks when contributed claims cannot be realized. According to this Article, if the claim cannot be realized after the performance period expires, and the company requests the contributor to make up the contribution and compensate for losses, the people's court shall not support such a request in principle, except where the articles of association provide otherwise, the contributor and the company agree that the contributor shall bear supplementary liability, or where a shareholder contributes a fabricated claim or a claim whose actual value is significantly lower than the contribution amount specified in the articles of association.
This rule reflects the legislature's recognition of the special nature of contributions of claims against others. One view holds that the value of the claim has already been determined through appraisal at the time of contribution, and therefore the company shall bear the risk. Another view holds that the value of a claim depends entirely on the debtor's repayment ability, which fundamentally differs from physical assets or equity interests. If the claim cannot be realized, it has no actual value to the company, and the appraisal of claims is highly susceptible to overvaluation.
From a risk prevention perspective, the rules on the contribution of claims against others present challenges for both companies and creditors. Companies should strengthen appraisal procedures when accepting claim contributions, prioritize independent third-party appraisal institutions, and clearly provide in the articles of association that the contributor shall bear supplementary liability where appropriate. Creditors may, pursuant to Article 21 of the Draft Judicial Interpretation, exercise relevant rights and focus on the compliance of the appraisal process. For contributions involving accounts receivable with long performance periods or significant changes in debtor creditworthiness, creditors should carefully examine the legality and reasonableness of the appraisal and may request judicial appraisal where necessary.
III. Article 19: Institutional Risks of Set-Off of Shareholder's Claims Against the Company
Article 19 of the Draft Judicial Interpretation permits shareholders to set off their contribution obligations with claims they hold against the company. Where a shareholder sets off its monetary contribution via a money claim it holds against the company, or sets off its non-monetary contribution after a resolution of the shareholders' meeting, the people's court shall support the assertion that the shareholder has performed its contribution obligation, except where the company has already entered bankruptcy proceedings or has already met substantive bankruptcy conditions. The shareholder asserting set-off shall recuse themselves from voting where a shareholders' meeting resolution is required, and the people's court shall ascertain the authenticity of the shareholder's claim against the company.
This provision raises concerns regarding the capital maintenance principle. Contribution obligations differ fundamentally from ordinary claims. Contributions constitute the company's capital and serve as the basis for the company to assume liability to external creditors. Permitting set-off may allow shareholders to use claims directly to set off contribution obligations, preventing the company from obtaining necessary operating funds. More seriously, shareholders may lend funds to the company first and later assert set-off, thereby evading contribution obligations in substance. Where a shareholder should perform its contribution obligation but instead lends funds and subsequently sets off, such a shareholder may participate in distribution as a creditor in bankruptcy proceedings, thereby undermining the statutory order of repayment and harming the legitimate rights and interests of the company and its creditors.
From a practical perspective, set-off rules may be used by shareholders to evade contribution obligations. Companies may restrict such conduct through the articles of association, such as by requiring shareholders to perform contribution obligations directly rather than lending funds to the company. Creditors should closely monitor transactions between shareholders and the company and exercise relevant rights in a timely manner when suspicious claims exist.
Conclusion
Articles 12, 18, and 19 of the Draft Judicial Interpretation reflect important developments in the system of shareholders' contribution liability. Article 12 clarifies circumstances where shareholders' agreements take effect against the company; Article 18 establishes rules on risk allocation for the contribution of claims against others; and Article 19 regulates the set-off of shareholder's claims against the company while attempting to prevent evasion of contribution obligations. These provisions reflect the effort of the Draft Judicial Interpretation to balance transaction facilitation and the protection of the legitimate rights and interests of the company and its creditors. Further clarification and refinement in the final version would contribute to improving the operability and stability of the contribution liability system.
I. Article 12: Boundary of the Effect of Shareholders' Agreements Against the Company
The effect of shareholders' agreements on the company has long lacked clear rules. Article 12 of the Draft Judicial Interpretation clarifies for the first time that a shareholders' agreement shall, in principle, bind only the shareholders concluding such an agreement, but may take effect against the company under three exceptions, including where all shareholders unanimously express written consent on matters of the shareholders' meeting resolution, where laws clearly provide that such an agreement takes effect against the company, and where the company explicitly recognizes it in the form of a resolution.
This provision reflects the drafters' effort to balance freedom of contract and corporate governance stability. From a legal perspective, a shareholders' agreement is essentially a civil contract and must follow the principle of privity of contract. However, since its content often involves the corporate governance structure, conflicts with company law rules are unavoidable.
More controversial is the circumstance where the company explicitly recognizes it in the form of a resolution. Whether such recognition is made by the board of directors or by the shareholders' meeting, both present defects. If recognition is made by the board of directors, such authorization would be excessive, because shareholders' agreements often involve the company's fundamental governance structure, and their effect is no less significant than amendments to the articles of association, and therefore should not be determined by the board of directors. If recognition is made by the shareholders' meeting, although procedurally legitimate, a shareholders' agreement, as a contract, requires the consent of all parties for amendment, whereas the articles of association may be amended by majority resolution. This difference may result in the company being constrained by the shareholders' agreement. Where circumstances change and amendment is necessary, even if the shareholders' meeting adopts a majority resolution, the shareholders' agreement cannot be amended, thereby impairing the company's operational flexibility. In addition, agreements concluded among some shareholders, once explicitly recognized by the company in the form of a resolution, may be used by controlling shareholders to impose arrangements agreed upon by some shareholders on all shareholders.
From a practical perspective, shareholders' agreements are confidential and are not subject to filing or registration, and new shareholders often have no means to know their existence. However, under this Article, once the company explicitly recognizes the agreement in the form of a resolution, the shareholders' agreement takes effect against the company, and new shareholders may be indirectly bound. In practice, it is advisable for the company to incorporate the content of such an agreement into the articles of association or shareholders' meeting resolutions, rather than merely recognizing the agreement itself, so as to avoid potential disputes.
II. Article 18: Risk Allocation for Contribution of Claims Against Others
Contribution of claims against others was formally recognized in the 2023 Company Law. Article 18 of the Draft Judicial Interpretation further clarifies the allocation of risks when contributed claims cannot be realized. According to this Article, if the claim cannot be realized after the performance period expires, and the company requests the contributor to make up the contribution and compensate for losses, the people's court shall not support such a request in principle, except where the articles of association provide otherwise, the contributor and the company agree that the contributor shall bear supplementary liability, or where a shareholder contributes a fabricated claim or a claim whose actual value is significantly lower than the contribution amount specified in the articles of association.
This rule reflects the legislature's recognition of the special nature of contributions of claims against others. One view holds that the value of the claim has already been determined through appraisal at the time of contribution, and therefore the company shall bear the risk. Another view holds that the value of a claim depends entirely on the debtor's repayment ability, which fundamentally differs from physical assets or equity interests. If the claim cannot be realized, it has no actual value to the company, and the appraisal of claims is highly susceptible to overvaluation.
From a risk prevention perspective, the rules on the contribution of claims against others present challenges for both companies and creditors. Companies should strengthen appraisal procedures when accepting claim contributions, prioritize independent third-party appraisal institutions, and clearly provide in the articles of association that the contributor shall bear supplementary liability where appropriate. Creditors may, pursuant to Article 21 of the Draft Judicial Interpretation, exercise relevant rights and focus on the compliance of the appraisal process. For contributions involving accounts receivable with long performance periods or significant changes in debtor creditworthiness, creditors should carefully examine the legality and reasonableness of the appraisal and may request judicial appraisal where necessary.
III. Article 19: Institutional Risks of Set-Off of Shareholder's Claims Against the Company
Article 19 of the Draft Judicial Interpretation permits shareholders to set off their contribution obligations with claims they hold against the company. Where a shareholder sets off its monetary contribution via a money claim it holds against the company, or sets off its non-monetary contribution after a resolution of the shareholders' meeting, the people's court shall support the assertion that the shareholder has performed its contribution obligation, except where the company has already entered bankruptcy proceedings or has already met substantive bankruptcy conditions. The shareholder asserting set-off shall recuse themselves from voting where a shareholders' meeting resolution is required, and the people's court shall ascertain the authenticity of the shareholder's claim against the company.
This provision raises concerns regarding the capital maintenance principle. Contribution obligations differ fundamentally from ordinary claims. Contributions constitute the company's capital and serve as the basis for the company to assume liability to external creditors. Permitting set-off may allow shareholders to use claims directly to set off contribution obligations, preventing the company from obtaining necessary operating funds. More seriously, shareholders may lend funds to the company first and later assert set-off, thereby evading contribution obligations in substance. Where a shareholder should perform its contribution obligation but instead lends funds and subsequently sets off, such a shareholder may participate in distribution as a creditor in bankruptcy proceedings, thereby undermining the statutory order of repayment and harming the legitimate rights and interests of the company and its creditors.
From a practical perspective, set-off rules may be used by shareholders to evade contribution obligations. Companies may restrict such conduct through the articles of association, such as by requiring shareholders to perform contribution obligations directly rather than lending funds to the company. Creditors should closely monitor transactions between shareholders and the company and exercise relevant rights in a timely manner when suspicious claims exist.
Conclusion
Articles 12, 18, and 19 of the Draft Judicial Interpretation reflect important developments in the system of shareholders' contribution liability. Article 12 clarifies circumstances where shareholders' agreements take effect against the company; Article 18 establishes rules on risk allocation for the contribution of claims against others; and Article 19 regulates the set-off of shareholder's claims against the company while attempting to prevent evasion of contribution obligations. These provisions reflect the effort of the Draft Judicial Interpretation to balance transaction facilitation and the protection of the legitimate rights and interests of the company and its creditors. Further clarification and refinement in the final version would contribute to improving the operability and stability of the contribution liability system.
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