[Q&A] Can Voting Rights Be Limited for Defective Contributions?

2024. 9. 18

Question: Can a company restrict the voting rights of shareholders with defective capital contributions?

Answer: Restrictions on the voting rights of shareholders with defective capital contributions should be implemented through the company’s articles of association or a resolution of the shareholders’ meeting. These restrictions should be empowering rather than mandatory.

In cases where shareholders have not fully paid their capital contributions, according to Article 52 of the new Company Law, if a shareholder fails to pay their capital contribution by the date specified in the company’s articles of association, the board of directors should verify the shareholder’s capital contribution status. If it is found that the shareholder has not paid the full amount on time, the company should issue a written demand for payment to the shareholder, specifying a grace period for payment. The grace period should be no less than sixty days from the date the demand is issued. If the shareholder still fails to fulfill their capital contribution obligation by the end of the grace period, the company may issue a forfeiture notice to the shareholder by resolution of the board of directors. The notice should be in writing. From the date the notice is issued, the shareholder loses their equity in the unpaid capital contribution and, consequently, their voting rights.

However, for shareholders whose capital contribution deadlines have not yet arrived, their voting rights are generally not affected. If the company’s specific articles of association stipulate that shareholder qualifications are affected by incomplete capital contributions or other restrictive conditions, then restrictions apply. It must be emphasized that the enjoyment of shareholder rights is premised on the fulfillment of shareholder obligations. Violating capital contribution obligations means that the shareholder should not enjoy corresponding rights, reflecting the principle of unity of rights and obligations, and consistency of interests and risks in civil law.

Allowing shareholders who have not fulfilled their capital contribution obligations to exercise all shareholder rights is unfair and harms the interests of other shareholders. Therefore, it is feasible to reasonably restrict the voting rights of shareholders with defective capital contributions.

According to Article 65 of the new Company Law, shareholders exercise their voting rights at shareholders’ meetings in proportion to their capital contributions, unless otherwise stated in the company’s articles of association. This provides a legal basis for restricting the voting rights of shareholders with defective capital contributions.

Article 16 of the Supreme People’s Court’s “Provisions on Several Issues Concerning the Application of the Company Law (III)” stipulates that if a shareholder fails to fulfill or fully fulfill their capital contribution obligations or withdraws their capital contribution, the company may reasonably restrict their rights to profit distribution, preemptive rights to subscribe for new shares, and rights to distribution of remaining assets based on the company’s articles of association or a resolution of the shareholders’ meeting. If the shareholder requests that these restrictions be deemed invalid, the people’s court will not support it.

For shareholders who have not fully paid their capital contributions due to unexpired deadlines, if the company’s original articles of association do not stipulate restrictions, their voting rights cannot be restricted or deprived without their consent.

In summary, the voting rights of shareholders with defective capital contributions can be restricted under certain conditions. However, such restrictions need to be based on the company’s articles of association or a resolution of the shareholders’ meeting, and should adhere to principles of fairness and reasonableness to protect the interests of the company and other shareholders. For shareholders with unexpired capital contribution deadlines, distinctions should be made to avoid undue restrictions on their voting rights.