The Great Shareholder Shuffle: Alan, Bob, and The Case of Carson’s Vanishing Contribution”

Once upon a quarantine, three college chums, hopped up on caffeine and dreams, convened over a glitchy video call. Their mission? To dive headfirst into the exhilarating world of trading knick-knacks, paddywhacks, and potentially a few dog bones abroad!

The plan was foolproof: Alan, flaunting his financial flair, pledged 500,000 RMB for a princely 50% of the shares. Bob, with slightly shallower pockets but equal gusto, threw in 300,000 RMB for 30%. And then there was Carson, who promised a cool 200,000 RMB for the remaining 20%. Their treasure chest would brim with 1 million RMB, and the deadline was set for the summer kickoff – June 1st, 2020.

But when the big day arrived, Carson’s contribution was as absent as a beachgoer’s tan in winter. Alan and Bob prodded, cajoled, and even broke out the puppy eyes, but Carson’s wallet remained shut tighter than a clam with stage fright. His excuse arsenal was endless: the dog ate his bank card, aliens abducted his accountant, and a sudden, urgent need to invest in sea monkey stocks.

With Carson’s share nowhere on the horizon, Alan and Bob were left pondering if they could legally toss their financially flaky friend overboard and sail their company ship duo-style. Will they find a way to maroon Carson on Exile Island, or is their business destined to be a trio, with or without the moolah?

Law In A Minute

Certainly, Alan and Bob have the option to excise Carson from the company’s ranks. The appropriate course of action entails convening a shareholders’ meeting where they can marshal their combined 80% shareholding—a figure that comfortably surpasses the required simple majority of 50%—to pass a resolution for Carson’s removal. Given Carson’s failure to make his pledged payment despite repeated reminders, the payment is now significantly overdue.

Moreover, there are grounds beyond mere non-payment that can justify a shareholder’s removal. The law specifies four scenarios that are included in the “legal basis” part of the article below.

In light of these regulations, if Carson’s behavior falls into any of these categories, it would further solidify Alan and Bob’s legal standing to remove him from the company.

Legal Basis

Provisions of the Supreme People’s Court about Several Issues Concerning the Application of the Company Law of the People’s Republic of China III

Article 12

After the establishment of a company, if the company, shareholders or creditors of the company use the behavior of the relevant shareholder to comply with one of the following circumstances and damage the company’s rights and interests as the grounds, the people’s court shall support it if the shareholder has withdrawn its capital contribution:

(1) Making false financial accounting statements and distributing false profits;

(2) Transferring out its capital contribution through fictitious creditor-debt relationship;

(3) Using connected transactions to transfer out capital contributions;

(4) Other acts of withdrawing capital without legal procedures.

Article 17

In the event that a shareholder of a limited liability company fails to fulfill their capital contribution obligations, or has absconded with the entirety of their capital contribution, and, following the company’s demand for payment or return of the contribution, the shareholder fails to pay or return the contribution within a reasonable period, the company may resolve to terminate the shareholder’s status through a shareholders’ meeting resolution. If the shareholder petitions for a declaration that such termination is invalid, the People’s Court shall not support the petition.

Under the situation described above, the People’s Court, in its judgment, should clarify that the company must promptly carry out the statutory procedures for capital reduction, or the corresponding capital should be contributed by the other shareholders or a third party. Prior to the completion of the statutory capital reduction procedures, or before the other shareholders or a third party make the corresponding capital contribution, if a creditor of the company petitions in accordance with the provisions of Article 13 or Article 14 of this regulation for the relevant parties to assume corresponding responsibilities, the People’s Court shall support such a petition.