Introduction
This unit studies corporate capital and finance through three connected questions. First, what legal architecture governs the formation of corporate capital? Second, what instruments can a company use to raise equity or debt finance? Third, what duties and remedies keep capital from becoming a hollow number once the company is operating?
The starting point is the revised Company Law’s renewed concern with capital credibility. Article 47 imposes a five-year payment period for limited liability company subscriptions. Article 98 requires promoters of a company limited by shares to pay for subscribed shares before establishment. Articles 142, 144, 146, 152, and 153 then give companies limited by shares new tools: no-par shares, class shares, class voting, and a limited authorized-capital mechanism under which the articles or shareholders’ meeting may authorize the board to issue shares within a three-year and 50 percent ceiling.
Debt finance belongs in the same unit because company capital is not only about shares. The revised Company Law contains a company-bond chapter. CSRC rules govern company-bond issuance and trading, convertible bonds, listed-company securities offerings, and directional convertible bonds used in asset acquisitions. The 2025 sci-tech innovation bond notice also shows how bond regulation is being used to support technology finance through more flexible proceeds use, disclosure, rating, credit enhancement, and market-making arrangements.
The unit’s organizing sequence is therefore: capital formation, financing instruments, and capital maintenance. Capital formation defines what shareholders have promised and when it is due. Financing instruments explain how companies raise funds through shares, class shares, convertible bonds, ordinary bonds, and specialized bond products. Capital maintenance supplies the corrective rules: defective contribution liability, withdrawal liability, forfeiture, contribution acceleration, transferor and transferee liability, capital reduction controls, and creditor remedies.
Key Legal Issues
- The capital three principles: capital certainty, capital maintenance, and capital non-variation, and why modern law has softened them without abandoning creditor protection.
- The difference between limited liability companies and companies limited by shares: human-association constraints in LLCs, capital-market flexibility in share companies.
- The five-year contribution period for limited liability companies and the “3+5” transition rule for companies registered before 1 July 2024.
- Non-monetary contribution after Article 48, including equity and claims as contribution assets, valuation, transferability, and creditor-risk concerns.
- Forfeiture under Article 52: written call notice, a grace period of at least 60 days, board resolution, loss of the unpaid portion, and the six-month transfer or cancellation follow-up.
- Contribution acceleration under Article 54 when the company cannot pay due debts.
- Article 88 liability when equity with unpaid subscribed capital is transferred.
- Share-company financing reforms: no-par shares, class shares, class voting, and board-authorized issuance.
- Company bonds, convertible bonds, directional convertible bonds in M&A, and company credit bond disclosure.
- The relationship between capital law, securities law, insolvency law, enforcement, and veil-piercing doctrine.
- Comparative debates over legal capital, authorized capital, no-par shares, class shares, Rule 144A debt offerings, and whether creditor protection is better supplied by capital rules, solvency tests, disclosure, covenants, or insolvency remedies.
Hypotheticals
- A newly formed limited liability company states a registered capital of RMB 50 million, but all shareholders choose a five-year contribution period and the company later cannot pay a supplier.
- Before 1 July 2024, a company adopted a 30-year contribution period. Its remaining contribution period still exceeds five years from 1 July 2027.
- A shareholder contributes a claim against the company by set-off while the company is close to insolvency.
- A shareholder fails to pay RMB 2.5 million of a RMB 3 million subscription after a written call notice and 60-day grace period.
- Shareholders transfer unpaid subscribed equity for zero consideration to an affiliated company after a judgment creditor starts enforcement.
- A company limited by shares wants the board to issue 40 percent more shares within two years under an articles-based authorization.
- A start-up wants special voting shares and preferred economic rights for investors, while founders want control protection.
- A listed company issues convertible bonds and later faces pressure to adjust the conversion price, redeem, or trigger put-back rights.
Conceptual Map
| Stage | Core Question | Main Sources |
|---|---|---|
| Capital formation | What has been subscribed, issued, paid, valued, and registered? | Company Law arts. 47-50, 95-98; State Council registered-capital provisions |
| Equity finance | How can companies raise share capital and allocate different share rights? | Company Law arts. 142-153; listed-company issuance rules |
| Debt finance | How do companies borrow through securities without changing ownership immediately? | Company Law arts. 195-206; company-bond and convertible-bond rules |
| Capital maintenance | What happens when promised capital is unpaid, withdrawn, transferred, or made unavailable to creditors? | Company Law arts. 52-54, 88; Interpretation III; SPC draft interpretation |
| Creditor remedies | When can creditors accelerate contributions, challenge transfers, resist deadline extensions, or use insolvency/enforcement tools? | Company Law art. 54; Bankruptcy Law; enforcement rules; typical cases |
| Comparative law | Does legal capital protect creditors, or should law rely more on solvency, disclosure, covenants, and insolvency remedies? | EU directive; Delaware, UK, German, Rule 144A, Enriques-Macey, Armour |
Capital Formation Anchors
| Rule | Teaching Point |
|---|---|
| Article 47 | LLC shareholders must pay subscribed capital within five years from establishment unless special rules require otherwise. |
| State Council Order No. 784 | Pre-existing LLCs whose remaining contribution period exceeds five years from 1 July 2027 must adjust by 30 June 2027; pre-existing companies limited by shares must have promoters fully pay subscribed shares by that date. |
| Article 48 | Monetary and non-monetary contributions are permitted; equity and claims are now expressly named, but assets must be valuably assessable and transferable. |
| Article 50 | Other founding shareholders bear joint liability for deficient establishment-stage contributions within the shortfall. |
| Article 52 | Forfeiture turns unpaid capital into a company-administered remedy, but only after a written call, grace period, board resolution, and notice. |
| Article 53 | Withdrawal of capital requires return and may impose joint compensation liability on responsible directors, supervisors, and senior officers. |
| Article 54 | If the company cannot pay due debts, the company or due creditor may require shareholders to pay subscribed capital early. |
| Article 88 | For transfer of unmatured subscribed equity, the transferee bears the payment obligation and the transferor bears supplementary liability if the transferee defaults; different rules apply to already overdue or deficient contribution. |
Article 47 and Article 54 should be taught together. The five-year rule gives ordinary companies a contribution horizon, but Article 54 prevents shareholders from using that horizon as a shield when the company cannot pay due debts. Article 88 then closes the common escape route of transferring unpaid equity to a weak or affiliated transferee.
Equity Finance Anchors
| Device | Company Type | Core Function |
|---|---|---|
| Ordinary capital subscription | Limited liability company and company limited by shares | Establishes the basic member-investment relationship. |
| No-par shares | Company limited by shares | Allows the company to choose shares without stated par value; at least half of issue proceeds must enter registered capital. |
| Class shares | Company limited by shares | Permits differentiated economic rights, voting rights, and transfer restrictions, subject to limits for publicly offered companies. |
| Class voting | Company limited by shares issuing class shares | Protects class-specific rights when a matter may harm that class. |
| Authorized capital | Company limited by shares only | Allows articles or shareholders’ meeting to authorize the board to issue shares within three years and up to 50 percent of issued shares. |
The boundary is important: authorized capital is not a general LLC financing rule. It is a share-company rule. Limited liability companies remain closer to a statutory capital model, with flexibility supplied by articles, contribution scheduling, capital increase decisions, and shareholder consent rather than board-authorized share issuance.
Debt Finance Anchors
| Instrument | Legal Character | Teaching Point |
|---|---|---|
| Company bond | Debt security | Raises funds without immediate control dilution; relies on disclosure, covenants, trustee/manager functions, bondholder meetings, and default remedies. |
| Enterprise bond | Historical/project-oriented bond category | Useful for comparing regulatory origins and the movement toward converged company credit bond rules. |
| Non-financial enterprise debt financing instrument | Interbank-market debt product | Shows that corporate debt finance crosses company, securities, banking, and self-regulatory regimes. |
| Convertible bond | Debt with equity conversion option | Before conversion it is debt; after conversion the holder becomes a shareholder. The conversion option links bond finance to future equity finance. |
| Directional convertible bond for asset purchase | M&A payment instrument | Allows listed companies to use convertible debt as consideration in restructuring transactions. |
| Sci-tech innovation bond | Policy-supported bond category | Shows how bond-market rules can target technology finance through issuer expansion, flexible terms, simplified disclosure, and risk-sharing tools. |
Students should not treat bondholders as ordinary trade creditors in every respect. Bond investors rely on public or semi-public securities documents, trustee or manager arrangements, bondholder meetings, exchange or interbank rules, and securities-law liability. The Wuyang Bonds litigation is the bridge between debt finance and investor-protection litigation.
Legislation
Start with the revised Company Law. Articles 47-54 govern LLC capital contribution, non-monetary contribution, deficient contribution, forfeiture, withdrawal, and contribution acceleration. Article 88 governs liability after transfers of unpaid subscribed equity. Articles 95-98 set the formation and capital requirements for companies limited by shares. Articles 142-153 supply the share-company financing reforms: no-par shares, class shares, class voting, authorized capital, and new share issuance decisions. Articles 195-206 govern company bonds.
The State Council registered-capital provisions are essential for transition. The “3+5” schedule is now the practical calendar for existing companies: by 30 June 2027, many pre-2024 LLCs must adjust contribution periods that would otherwise exceed five years from 1 July 2027, and pre-existing companies limited by shares must have promoters fully pay subscribed shares.
The SPC temporal-effect provisions and Article 88 non-retroactivity reply should be used whenever facts straddle 1 July 2024. Article 88(1) applies only to transfers of unmatured subscribed equity occurring on or after that date. Interpretation III remains relevant for defective contribution, false contribution, withdrawal of capital, and older disputes. The 2025 draft company-law interpretation is not yet binding, but it is useful for likely judicial approaches to non-monetary contribution, set-off, forfeiture, acceleration, creditor claims, director collection duties, and illegal capital reduction.
For financing instruments, pair the Company Law with securities and bond-market rules. The listed-company securities issuance registration measures govern refinancing, shares, depositary receipts, and convertible bonds by listed companies. The company-bond measures under CSRC Order No. 222 integrate company bonds and enterprise bonds within the CSRC-led exchange-market framework. The convertible-bond measures define convertible bonds as equity-like securities under the Securities Law, regulate trading, conversion, redemption, put-back, price adjustment, disclosure, and investor suitability, and require at least six months before conversion. The directional convertible-bond asset-purchase rule is a special M&A rule. The corporate credit bond disclosure measures unify disclosure expectations across company credit bonds. The 2025 PBOC-CSRC sci-tech innovation bond notice shows the latest policy direction for specialized bond finance.
For comparative law, use the EU Company Law Directive for the classic legal-capital model, Delaware for authorized shares, no-par shares, board issuance, and class rights, the UK Companies Act for share capital and distributions, Germany’s Stock Corporation Act for more structured capital and group-law rules, and U.S. Rule 144A for institutional private debt and high-yield bond practice.
Cases
The contribution-period cases show that contribution timing is not merely a filing detail. Hongda teaches that capital majority should not be used to strip another shareholder of the negotiated benefit of a contribution period without legal basis or urgent justification. Wang Qinjie v. Licheng is useful on the other side of the problem: extending a contribution deadline may require stronger consent because it can affect both shareholder bargains and creditor expectations.
The Beijing Building Materials reference case supplies a clean teaching example for claim contribution and set-off. It asks when a shareholder’s matured claim against the company can be used to satisfy contribution obligations and when that would unfairly prefer an insider over outside creditors.
Today Seed and the SPC Zhuang typical case show the creditor side of unpaid capital. Both involve suspicious transfers of unpaid subscribed equity. The Zhuang case is especially vivid: zero-price transfers among affiliated actors, a company already unable to pay, and a later resolution extending the contribution deadline to 2040. The court treated the extension as ineffective against the creditor and imposed supplementary liability within the unpaid contribution amount.
The SPC Chen horizontal veil-piercing case is not primarily an Article 88 case, but it belongs here because it shows the next creditor move when capital and assets are shifted through affiliated companies. If unpaid capital rules do not capture the whole abuse, personality-denial and debt-evasion analysis may enter.
The Haidian typical cases, Tianjin shareholder-expulsion material, Fujian foreign-investor contribution case, and Guiding Case No. 9 widen the field. They let students connect contribution records, registration, foreign-investor obligations, liquidation, and enforcement. Wuyang Bonds extends the unit into debt finance by showing that company-bond investors may use representative litigation and gatekeeper liability when bond issuance and disclosure fail.
For the forfeiture rule, use a structured statutory problem rather than presenting an unverified “first case.” A shareholder subscribes RMB 3 million, pays RMB 500,000, receives a written call notice with a 60-day grace period, still fails to pay, and then receives a forfeiture notice after a board resolution. Students should identify the lost unpaid portion, the need to transfer or cancel it within six months, and the fallback obligation of other shareholders if that does not happen.
Comparative Materials
The classic comparative divide is between legal capital and authorized capital. Traditional continental systems used capital certainty, maintenance, and non-variation to protect creditors by fixing a formal capital base. Common-law systems developed more flexible authorized-share structures, leaving creditor protection to disclosure, solvency, contract, fraudulent-transfer law, fiduciary duties, and insolvency remedies. Modern systems are converging, but not in a straight line.
The revised Chinese model is a dual structure. Limited liability companies retain a tighter contribution regime through the five-year payment rule and contribution-acceleration remedy. Companies limited by shares receive more financing flexibility through no-par shares, class shares, and limited authorized capital. This is not a full U.S.-style model. The three-year authorization limit, 50 percent issue ceiling, non-monetary contribution carve-out, and class-voting safeguards show a more cautious adaptation.
Delaware is the natural comparator for authorized shares, no-par shares, and class rights. It allows flexible charter design and board issuance within statutory and fiduciary constraints. The United Kingdom is useful for share capital, allotment authority, pre-emption, distributions, and public-company creditor protections. Germany helps students understand a more formal capital tradition and a separate group-company law. The EU directive is useful for capital maintenance, distributions, own-share acquisition, capital increases, and capital reductions.
Debt finance adds a different comparative lens. U.S. Rule 144A shows how sophisticated-institution private resale markets can deepen corporate debt financing while limiting retail exposure. Many high-yield and cross-border debt offerings use Rule 144A and Regulation S structures. China’s company-bond and sci-tech innovation bond reforms ask a parallel policy question: how can rules expand direct financing while preserving disclosure, investor suitability, credit-risk pricing, and default discipline?
The central comparative question is the same across equity and debt: should creditor protection be front-loaded through capital rules, handled at the moment of distribution or issuance, delegated to disclosure and covenants, or resolved ex post through enforcement, insolvency, and veil-piercing doctrines?
Readings
Use the readings in five clusters. The first cluster explains China’s move from the 2014 subscribed-capital liberalization to the 2023 revision’s renewed discipline: Shen, Liu, TangLau, the IBA note, China Briefing, and the Chinese practice materials are best for implementation.
The second cluster focuses on contribution doctrine. Jiang on acceleration, Zhang on debt-law evaluation of abnormal contribution performance, Li and Cai on partly paid shares, and the SPC draft interpretation materials help students connect contribution law to creditor remedies and shareholder-creditor agency problems.
The third cluster concerns capital formation and authorized capital. The Tsinghua and corporate-capital formation materials, together with Ma and An’s article on localized authorized capital, should be used when discussing whether Article 152 is a true authorized-capital system, a limited authorization rule, or a Chinese hybrid.
The fourth cluster turns to debt finance and practice. Use the Sanjiang convertible-bond material as a current public example of registration-based convertible-bond issuance, original-shareholder priority allocation, face-value issuance, six-year maturity, coupon structure, conversion-price mechanics, redemption, put-back, and exchange trading.
The fifth cluster is comparative and critical. Enriques and Macey, Armour, the EU directive, Delaware, UK, Germany, Rule 144A, Hansmann-Kraakman-Squire, and the one-yuan-company literature help students ask whether registered capital supplies meaningful creditor protection or mostly works as information, discipline, and litigation leverage.
For first preparation, students should read the Company Law provisions listed in the core index, the State Council transition rule, Hongda, the SPC Zhuang typical case, the convertible-bond measures, and one comparative critique of legal capital.
Core Statutory Index
| Topic | Core Source |
|---|---|
| Corporate property and liability | Company Law art. 3 |
| LLC five-year contribution period | Company Law art. 47 |
| Non-monetary contribution, including equity and claims | Company Law art. 48 |
| Founding shareholder capital shortfall liability | Company Law art. 50 |
| Forfeiture | Company Law art. 52 |
| Withdrawal of capital | Company Law art. 53 |
| Contribution acceleration | Company Law art. 54 |
| Equity transfer and unpaid capital liability | Company Law art. 88 |
| Promoters of companies limited by shares | Company Law art. 98 |
| No-par shares | Company Law art. 142 |
| Class shares | Company Law arts. 144-146 |
| Authorized capital and new share issuance | Company Law arts. 152-153 |
| Company bonds | Company Law arts. 195-206 |
| Existing-company transition | State Council Order No. 784, art. 2 |
| Company-bond registration and trading | CSRC company-bond measures |
| Convertible bonds | CSRC convertible-bond measures |
| Directional convertible bonds for asset purchase | CSRC Announcement [2023] No. 58 |
| Company credit bond disclosure | PBOC/NDRC/CSRC credit bond disclosure measures |
Teaching Notes
Teach this unit as a legal-architecture map, not as a list of finance products. The through-line is “capital formation - financing instrument - capital maintenance.” Once students see that line, they can place each rule correctly: Article 47 sets timing, Article 52 disciplines non-payment, Article 54 protects creditors when the company cannot pay, Article 88 blocks evasive transfers, Articles 142-153 create more flexible share financing, and the bond rules govern debt finance without immediate ownership dilution.
Emphasize the company-type boundary. Authorized capital, no-par shares, and class shares are share-company reforms. LLC financing remains more consent-based and articles-based because LLCs retain a stronger personal-association character.
Use the comparative materials to make students argue both sides. Legal capital can inform creditors and discipline shareholders, but it can also be formal, costly, and weak against real asset diversion. Disclosure, solvency, covenants, and insolvency remedies can be more targeted, but they may be less visible to small creditors. The revised Chinese approach tries to combine formal capital discipline with financing flexibility; the hard questions are where that balance is too strict, too loose, or simply mismatched to the transaction.