China Seeks Public Input on Draft Judicial Interpretation for Company Law
Published 19 October 2025
Xia Yu
On 30 September 2025, the Supreme People‘s Court of the People’s Republic of China released the Interpretation on Several Issues Concerning the Application of the Company Law of the People‘s Republic of China (“Draft Interpretation”), soliciting public feedback until 20 October 2025. The Company Law of the People’s Republic of China (“Company Law”) was amended on 29 December 2023. It introduces significant revisions to existing regulations and establishes multiple new legal frameworks, including provisions on shareholder capital contribution obligations, corporate governance, and corporate veil piercing. The Draft Interpretation aims to ensure the effective implementation of the Company Law, unify judicial standards, and supersede the current relevant judicial interpretations, namely the Provisions of the SPC on Several Issues concerning the Application of the Company Law of the People’s Republic of China I to IV.
The Draft Interpretation comprises 90 articles organized into eight parts: General Provisions (11 articles), Shareholder Capital Contributions and Related Liabilities (19 articles), Nominee Shareholdings and Investor Rights Protection (9 articles), Equity Transfers and Preemptive Rights (9 articles), Corporate Governance (11 articles), Corporate Dissolution and Liquidation (18 articles), Special Provisions for Listed Companies (10 articles), and Supplementary Provisions (3 articles). Core provisions most relevant to commercial practice and foreign investment include those addressing corporate governance and directors’ duties, shareholder capital contributions and capital systems, corporate veil piercing and denial of legal entity status, nominee shareholding arrangements, and special regulations for listed companies.
Regarding corporate governance and directors’ duties, the Draft Interpretation clarifies the judicial procedures for the resignation and removal of legal representatives, directors’ obligations to call for capital contributions, and the legal application of de facto directors and shadow directors. The Draft Interpretation establishes a judicial pathway for the resignation of legal representatives. Even if a company refuses to cooperate with the change, courts may order the company to complete the removal registration, thereby resolving the practical difficulty of “nominee legal representatives” seeking to resign. Article 27 enumerates five scenarios in which directors may be held liable for failing to fulfill capital call obligations, including: failure to verify shareholders’ capital contributions, passing improper resolutions regarding shareholder default, neglecting to issue written capital calls to delinquent shareholders in a timely manner, failure to ensure subsequent transferees of defaulted shares fulfill outstanding contributions or where transfer prices fall below subscribed capital amounts, and violations of fiduciary duties during the verification, capital call, or handling of defaulted share processes. This provision aims to compel directors to actively enforce shareholders’ capital contribution obligations. Article 88 stipulates that controlling shareholders and actual controllers who do not hold directorial positions but effectively manage company affairs may be held liable for company losses equivalent to directors’ liabilities. This provision pierces the corporate veil to directly implicate behind-the-scenes decision-makers, significantly elevating legal risks for controlling shareholders.
With respect to shareholder capital contributions and capital systems, the Draft Interpretation provides further elaboration on the provisions of the Company Law concerning the accelerated maturity of subscribed capital contributions, liabilities following the transfer of defectively contributed equity, and the use of creditor’s rights for capital contributions and set-off. Article 24 explicitly stipulates that when a company is “insolvent” and fails to seek recourse from its shareholders, creditors may directly request shareholders whose capital contribution deadlines have not yet expired to fulfill their obligations. This provision overrides the protection of temporal interests under the subscribed capital system, accelerating the maturity of shareholders’ subscribed capital obligations when the company becomes insolvent. Articles 43 and 44 address liabilities associated with the transfer of defectively contributed equity. In cases where equity with unmet contribution deadlines is transferred and conditions for accelerated maturity are satisfied, the transferee assumes the obligation to fulfill the contribution, while the transferor bears supplementary liability. For transfers involving equity with incompletely fulfilled contribution obligations or equity withdrawn after contribution, a transferee acting in good faith is not held jointly liable. Articles 18 and 19 refine the rules governing capital contributions using third-party creditor’s rights, permitting shareholders to offset their contribution obligations with claims held against the company. This rule facilitates greater diversity in contribution methods.
Regarding corporate veil piercing and denial of legal entity status, the Draft Interpretation expands the application scope of this doctrine. Where affiliated companies under common control engage in excessive domination or commingling of assets, substantially prejudicing creditors’ interests, creditors may seek joint and several liability among such affiliated entities. This enables creditors to pursue not only “vertical” claims against shareholders but also “horizontal” claims against sibling companies or other affiliated entities. For single-member companies, the burden of proving asset independence may be satisfied by submitting compliant annual financial reports, or by providing complete and continuous corporate accounting records and requesting a special audit. Companies established by spousal shareholders are not automatically presumed to be single-member companies absent additional factors. These provisions offer clearer compliance guidance for single-member companies while avoiding the automatic imposition of stricter liability regimes on ordinary spousal-owned enterprises.
The Draft Interpretation further clarifies the validity and risks of nominee shareholding arrangements, reaffirming the judiciary’s negative stance towards unlawful nominee agreements. For an actual capital contributor to be registered as a formal shareholder, such status must be approved by a resolution of the company’s shareholders’ meeting, or consented to by more than half of the other shareholders who were informed and raised no objection. Additionally, the Draft Interpretation specifies that nominee agreements concluded for the purpose of circumventing financial regulatory requirements, information disclosure rules for listed companies, or restrictions on public officials’ employment shall be deemed invalid.
For listed companies, the Draft Interpretation introduces specific provisions regulating anti-takeover measures, validating mechanisms for valuation adjustments, and addressing the enforceability of guaranteed return clauses in private placements. When reviewing anti-takeover clauses in the articles of association of listed companies, courts may deem such clauses invalid if they determine that the company has improperly restricted shareholders’ rights or increased shareholders’ obligations by raising shareholding ratio thresholds or minimum holding period requirements; imposed unjustified restrictions on the qualifications of directors or senior management personnel that clearly favor or exclude specific individuals; or violated mandatory legal provisions or public order and good morals. Furthermore, the Draft Interpretation explicitly invalidates valuation adjustment mechanisms at the listed company level, as well as guaranteed return commitments in private placements. This reflects the judiciary’s particular emphasis on protecting the securities market and the interests of minority investors.
In conclusion, the Draft Interpretation significantly enhances the liabilities of directors, controlling shareholders, and de facto controllers, elaborates and expands the application of corporate veil piercing doctrines, and provides clearer guidance on capital systems, equity transactions, and corporate governance.
The Draft Interpretation comprises 90 articles organized into eight parts: General Provisions (11 articles), Shareholder Capital Contributions and Related Liabilities (19 articles), Nominee Shareholdings and Investor Rights Protection (9 articles), Equity Transfers and Preemptive Rights (9 articles), Corporate Governance (11 articles), Corporate Dissolution and Liquidation (18 articles), Special Provisions for Listed Companies (10 articles), and Supplementary Provisions (3 articles). Core provisions most relevant to commercial practice and foreign investment include those addressing corporate governance and directors’ duties, shareholder capital contributions and capital systems, corporate veil piercing and denial of legal entity status, nominee shareholding arrangements, and special regulations for listed companies.
Regarding corporate governance and directors’ duties, the Draft Interpretation clarifies the judicial procedures for the resignation and removal of legal representatives, directors’ obligations to call for capital contributions, and the legal application of de facto directors and shadow directors. The Draft Interpretation establishes a judicial pathway for the resignation of legal representatives. Even if a company refuses to cooperate with the change, courts may order the company to complete the removal registration, thereby resolving the practical difficulty of “nominee legal representatives” seeking to resign. Article 27 enumerates five scenarios in which directors may be held liable for failing to fulfill capital call obligations, including: failure to verify shareholders’ capital contributions, passing improper resolutions regarding shareholder default, neglecting to issue written capital calls to delinquent shareholders in a timely manner, failure to ensure subsequent transferees of defaulted shares fulfill outstanding contributions or where transfer prices fall below subscribed capital amounts, and violations of fiduciary duties during the verification, capital call, or handling of defaulted share processes. This provision aims to compel directors to actively enforce shareholders’ capital contribution obligations. Article 88 stipulates that controlling shareholders and actual controllers who do not hold directorial positions but effectively manage company affairs may be held liable for company losses equivalent to directors’ liabilities. This provision pierces the corporate veil to directly implicate behind-the-scenes decision-makers, significantly elevating legal risks for controlling shareholders.
With respect to shareholder capital contributions and capital systems, the Draft Interpretation provides further elaboration on the provisions of the Company Law concerning the accelerated maturity of subscribed capital contributions, liabilities following the transfer of defectively contributed equity, and the use of creditor’s rights for capital contributions and set-off. Article 24 explicitly stipulates that when a company is “insolvent” and fails to seek recourse from its shareholders, creditors may directly request shareholders whose capital contribution deadlines have not yet expired to fulfill their obligations. This provision overrides the protection of temporal interests under the subscribed capital system, accelerating the maturity of shareholders’ subscribed capital obligations when the company becomes insolvent. Articles 43 and 44 address liabilities associated with the transfer of defectively contributed equity. In cases where equity with unmet contribution deadlines is transferred and conditions for accelerated maturity are satisfied, the transferee assumes the obligation to fulfill the contribution, while the transferor bears supplementary liability. For transfers involving equity with incompletely fulfilled contribution obligations or equity withdrawn after contribution, a transferee acting in good faith is not held jointly liable. Articles 18 and 19 refine the rules governing capital contributions using third-party creditor’s rights, permitting shareholders to offset their contribution obligations with claims held against the company. This rule facilitates greater diversity in contribution methods.
Regarding corporate veil piercing and denial of legal entity status, the Draft Interpretation expands the application scope of this doctrine. Where affiliated companies under common control engage in excessive domination or commingling of assets, substantially prejudicing creditors’ interests, creditors may seek joint and several liability among such affiliated entities. This enables creditors to pursue not only “vertical” claims against shareholders but also “horizontal” claims against sibling companies or other affiliated entities. For single-member companies, the burden of proving asset independence may be satisfied by submitting compliant annual financial reports, or by providing complete and continuous corporate accounting records and requesting a special audit. Companies established by spousal shareholders are not automatically presumed to be single-member companies absent additional factors. These provisions offer clearer compliance guidance for single-member companies while avoiding the automatic imposition of stricter liability regimes on ordinary spousal-owned enterprises.
The Draft Interpretation further clarifies the validity and risks of nominee shareholding arrangements, reaffirming the judiciary’s negative stance towards unlawful nominee agreements. For an actual capital contributor to be registered as a formal shareholder, such status must be approved by a resolution of the company’s shareholders’ meeting, or consented to by more than half of the other shareholders who were informed and raised no objection. Additionally, the Draft Interpretation specifies that nominee agreements concluded for the purpose of circumventing financial regulatory requirements, information disclosure rules for listed companies, or restrictions on public officials’ employment shall be deemed invalid.
For listed companies, the Draft Interpretation introduces specific provisions regulating anti-takeover measures, validating mechanisms for valuation adjustments, and addressing the enforceability of guaranteed return clauses in private placements. When reviewing anti-takeover clauses in the articles of association of listed companies, courts may deem such clauses invalid if they determine that the company has improperly restricted shareholders’ rights or increased shareholders’ obligations by raising shareholding ratio thresholds or minimum holding period requirements; imposed unjustified restrictions on the qualifications of directors or senior management personnel that clearly favor or exclude specific individuals; or violated mandatory legal provisions or public order and good morals. Furthermore, the Draft Interpretation explicitly invalidates valuation adjustment mechanisms at the listed company level, as well as guaranteed return commitments in private placements. This reflects the judiciary’s particular emphasis on protecting the securities market and the interests of minority investors.
In conclusion, the Draft Interpretation significantly enhances the liabilities of directors, controlling shareholders, and de facto controllers, elaborates and expands the application of corporate veil piercing doctrines, and provides clearer guidance on capital systems, equity transactions, and corporate governance.