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The recent overhaul of the capital subscription regime has brought new complexities. Under article 88(1) of the new Company Law, when a shareholder transfers shares for which the capital contribution deadline has not yet fallen due, the transferee becomes primarily liable for the contribution, while the transferor assumes a supplementary liability should the transferee fail to pay in time.

The problem grows more intricate where the shares are held under a nominee arrangement, as the rules on transferor and transferee liability intersect with those governing the accountability of the beneficial owner. This article considers the evolving landscape by reference to the Interpretation of the Supreme People¡¯s Court on Several Issues Concerning the Application of the Company Law (Exposure Draft) and current market practice.

Dual-standard approach

A nominee structure separates the beneficial owner from the registered shareholder. In practice, a dual-standard approach is typically applied, drawing a clear line between internal and external relations. Internally, a substantive review prevails, with rights and obligations determined primarily by reference to the actual provision of capital. Externally, a formal review applies, with rights and obligations ascertained on the basis of the company register.

Article 26 of the Provisions (III) of the Supreme People¡¯s Court on Several Issues Concerning the Application of the Company Law states that, where a company creditor invokes a registered shareholder¡¯s failure to contribute capital, seeking supplementary liability for unpaid debts to the extent of the unpaid capital and interest, the court will reject a defence that the shareholder is merely a nominee, not the beneficial owner.

Having borne such liability, the nominal shareholder may recover the amount from the beneficial owner, and the court will support that claim. Simply put, liability runs outwards to the creditor and recourse runs inwards to the beneficial owner.

The rule is clear and the courts have been consistent in their approach. In the case of Jing 02 Min Zhong 12497 (2024), a claim for shareholder liability for harm to a creditor¡¯s interests, the Beijing Second Intermediate People¡¯s Court found that an internal nominee arrangement could not defeat an external creditor¡¯s reliance on the registered shareholder.

Pursuant to article 26 of the provisions, the nominal shareholder was held liable on a supplementary basis. A related claim for alteration of the company register had no effect on the outcome, and a stay was not required.

Formalisation prioritised

The exposure draft moves beyond the existing dual-standard model that treats internal and external relations separately. Instead, it adopts a rule anchored in the appearance principle, supplemented by substantive review where circumstances require.

Under article 34 of the exposure draft, the general rule on contribution liability in a nominee arrangement is that the beneficial owner bears liability if it qualifies for formalisation; otherwise, the nominal shareholder bears liability. Creditor claims against either party, up to the amount of the unpaid contribution and any loss caused to the company, follow the same rule.

Article 35 of the exposure draft provides as follows: Where a nominal shareholder transfers equity to bring the beneficial owner onto the register and that a creditor claims supplementary contribution liability against the nominal shareholder, the court must first examine the nature of the transaction to determine whether it is a genuine equity transfer or merely the formalisation of the beneficial owner.

If it is held to be the latter, the beneficial owner bears the contribution liability. If not, the nominal shareholder bears supplementary liability as transferor under article 88 of the new Company Law.

The rule¡¯s central logic is straightforward: where the nominal shareholder proves that the beneficial owner qualifies for formalisation, contribution liability shifts to the beneficial owner. This helps correct the severe imbalance of rights and obligations that may otherwise arise between the parties, and allows the courts to address the nominee relationship and creditor liability together in a single case.

Third-party transfer

Article 33 of the exposure draft deals with unauthorised transfers by a nominal shareholder to a third party by reference to the bona fide acquisition rules, presuming the third party acted in good faith. If the shares are not yet due for contribution, a creditor may claim against the third party under article 88 of the new Company Law.

The transferor¡¯s supplementary liability for contribution is to be established only after the determination of whether the transaction effects a formalisation of the beneficial owner.

Tighter formalisation criteria

The exposure draft suggests tightened criteria for formalising a beneficial owner. Article 31 provides two paths to formalisation:

(1) The company resolves, through a shareholders¡¯ meeting, to recognise the beneficial owner¡¯s shareholder status; or

(2) More than half of the other shareholders consent to the beneficial owner exercising shareholder rights, or more than half of the other shareholders knew or ought to have known of the arrangement and did not object to the actual exercise of those rights.

For the second path, the Supreme People¡¯s Court is considering a possible alternative that would replace the ¡°more than half¡± standard with one of ¡°unanimous consent¡±.

Attributing liability for the transfer of not-yet-due equity in a nominee arrangement hinges on correctly characterising the legal relationship. Under the exposure draft¡¯s proposed framework anchored in the appearance principle and supplemented by substantive review, the threshold question is whether the beneficial owner satisfies the statutory formalisation criteria.

For nominal shareholders, any transfer, to the beneficial owner or to a third party, exposes them to potential supplementary contribution liability, a risk that demands prudent evaluation at both the holding and exit stages.

Jiang Xuan is a partner and Wang Zhongyu is an associate at Zhong Lun Law Firm