In order to correctly apply the Company Law of the People's Republic of China, by taking into consideration the judicial practice, we hereby make the following provisions on the application of law by people's courts in trial of cases involving disputes over the establishment, capital contribution, equity affirmation, etc., of companies.

Article 1    A person who, for the purpose of setting up a company, signs the articles of association, contributes capital to or subscribe the shares of the company, and performs the duties relating to incorporation, shall be recognized as the promoter of the company. Promoters shall include shareholders of a limited liability company at the time of its incorporation.

Article 2    Where a promoter, for the purpose of setting up a company, signs in his/her own name a contract with an external party, and the external party requests the promoter to bear the contractual liabilities, the people's court shall uphold such a request.
Where a company recognizes the contract specified in the preceding Paragraph after incorporation, or has actually enjoyed the contractual rights or performed the contractual obligations, and the external party requests the company to bear the contractual liabilities, the people's court shall uphold such a request.

Article 3    Where a promoter signs a contract with an external party in the name of the company pending incorporation, the people's court shall uphold the claim made, after the establishment of the company, by the external party requiring the company to bear the contractual liabilities.
Where after incorporation, the company requests to be exempted from the said contractual liabilities on the ground that there is evidence proving its promoter has signed the contract with the counterpart for his/her own interests by using the name of the company then in the incorporation process, the people's court shall uphold the claim, unless the counterpart is a bona fide party.

Article 4    In the event of the non-incorporation of a company for any reason, the people's court shall uphold the claim made by a creditor of the company that all or certain promoters shall be severally and jointly liable for paying off the expenses and debts incurred in the incorporation process.
Where a certain promoter, after having assumed his/her liabilities in accordance with the preceding Paragraph, requests the other promoters to share the expenses and debts, the people's court shall order the other promoters to assume the liabilities according to the agreed proportion. Where no such agreement is available, the people's court shall order the other promoters to bear the liabilities in accordance with the agreed capital contribution ratio, or to bear the liabilities equally in the absence of such a ratio.
In the event that the fault on the part of a certain promoter results in the non-incorporation of the company, and that the other promoters request the promoter at fault to bear the liability for the expenses and debts arising out of the incorporation process, the people's court shall determine the scope of liabilities of the promoter at fault according to the graveness of his/her fault.

Article 5    Where a promoter, for the purpose of performing the duties relating to company establishment, damages the interests of another party, the people's court shall uphold the claim made, after company establishment, by the infringed party requesting the company to bear the liability for compensation. In the event that the company is not set up, the people's court shall uphold the claim made by the infringed party requesting all the promoters to bear joint and several liability for compensation.
After bearing the liabilities for compensation, the company or the promoter that is not at fault may institute recourse against the promoter at fault.

Article 6    Where a subscriber to a joint stock company fails to pay for the shares subscribed as scheduled, and still fails to make the payment within a reasonable period after being urged by the promoter of the company, as a result of which the promoter calls for another round of subscription to the shares in question, the people's court shall determine the new subscription as valid, and uphold the claim made by the company requesting the subscriber who fails to pay on time to bear the liability for compensating the losses, if any, suffered by the company due to the delayed payment.

Article 7    Where an investor makes capital contribution with the asset of which he/she is not entitled to dispose, leading the parties concerned to dispute over the validity of the capital contribution, the people's court may determine such validity with reference to Article 106 of the Property Law.
Where an investor acquires equities for the capital contribution made with the money obtained from criminal offenses such as corruption, accepting bribes, embezzlement or misappropriation, the equities shall be disposed of by auction or sale when the investor is being investigated and punished for his/her criminal offenses.

Article 8    Where an investor makes capital contribution with the right to use allocated land or the right to use land with encumbrance, and the company, other shareholders or a creditor of the company makes a claim requesting the people's court to determine that the investor has not fulfilled the capital contribution obligation, the people's court shall order the investor to complete the formalities for land changes or relieve the land from the encumbrance within a reasonable period specified. If the investor fails to complete such formalities or relieve the land from encumbrance within the prescribe time period, the people's court shall determine that the investor has failed to fully fulfill his/her capital contribution obligation pursuant to the law.

Article 9    Where an investor makes capital contribution with non-monetary assets that have not been lawfully valued and priced, and the company, other shareholders or a creditor of the company makes a claim requesting the people's court to determine that the investor has not fulfilled the capital contribution obligation, the people's court shall entrust a lawfully qualified valuation agency to value and price the asset, and shall determine that the investor has failed to fully fulfill his/her capital contribution obligation pursuant to the law if the amount determined after valuation is significantly lower than the amount specified in the articles of association of the company.

Article 10    Where an investor makes capital contribution with housing, the land-use right or the intellectual property right for which registration of ownership is required, and has delivered them to the company for use without completing the procedures for change of ownership, and the company, other shareholders or a creditor of the company makes a claim requesting the people's court to determine that the investor has not fulfilled the capital contribution obligation, the people's court shall order the investor to complete the formalities for change of ownership within a reasonable period specified. If the investor completes such formalities within the aforesaid time period, the people's court shall determine that the investor has fulfilled his/her capital contribution obligation, and shall uphold the claim made by the investor that he/she is entitled to the corresponding shareholders' rights as of the time when he/she actually delivered the assets to the company for use.
Where an investor making capital contribution with an asset referred to in the preceding Paragraph has handled the formalities for change of ownership but failed to deliver the asset to the company for use, the people's court shall uphold the claim made by the company or other shareholders that the investor shall deliver the assets to the company, and that the investor is not entitled to the corresponding shareholders' rights prior to the actual delivery.

Article 11    Where an investor makes capital contribution with the equities of another company, the people's court shall determine that the investor has fulfilled his/her capital contribution obligation as long as the following conditions are satisfied:
(1) The equities contributed are lawfully held by the investor and are transferable pursuant to the law;
(2) The equities contributed are free from defects and encumbrances;
(3) The investor has completed the statutory procedures for equity transfer; and
(4) The equities contributed have been valued pursuant to the law.
Where the company, other shareholders or a creditor of the company makes a claim requesting the people's court to determine that the investor has not fulfilled the capital contribution obligation on the ground that Items (1), (2) or (3) of the preceding Paragraph is not complied with, the people's court shall order the investor to take corrective measures within a reasonable time period specified so as to satisfy the above conditions. If the investor fails to make corrections within the prescribed time period, the people's court shall determine that the investor has failed to fully fulfill his/her contribution obligation pursuant to the law.
Where the company, other shareholders or a creditor of the company makes a claim requesting the people's court to determine that the investor has not fulfilled the capital contribution obligation on the ground that Item (4) of Paragraph 1 of this Article is not complied with, the people's court shall handle the case in accordance with Article 9 herein.

Article 12    Where, after a company is incorporated, the company, a shareholder or a creditor of the company requests the people's court to determine that the shareholder concerned has withdrawn his/her capital contribution on the ground that the acts of the shareholder fall under any of the following circumstances and are detrimental to the interests of the company, the people's court shall uphold the claim:
(1) Where the shareholder first transfers the monetary contribution to the company's account for capital verification purpose, and then takes the contribution out;
(2) Where the shareholder transfers out his/her contribution by fabricating the creditor-debtor relationship;
(3) Where the shareholder distributes profits by making false financial and accounting statements to inflate profits;
(4) Where the shareholder transfers out his/her contribution by taking advantage of associated transactions; or
(5) Where the shareholder withdraws his/her contribution by any other means without going through statutory procedures.

Article 13    Where a shareholder fails to perform or fully perform his/her capital contribution obligation, the people's court shall uphold the claim made by the company or other shareholders requiring the shareholder to fully perform his/her capital contribution obligation towards the company as required by law.
The people's court shall uphold the claim made by a creditor of the company requiring the shareholder who has not fulfilled or fully fulfilled his/her capital contribution obligation to bear additional liabilities, to the extent of the principal and interest not contributed by him/her, for compensating the debts of the company that are unable to be repaid. The people's court shall not uphold the same claim made by other creditors if the said shareholder has assumed the aforesaid compensation liability.
In the event that a shareholder fails to fulfill or fully fulfill his/her capital contribution obligation in the incorporation process of the company, as a result of which a plaintiff who brings a lawsuit in accordance with Paragraphs 1 or 2 of this Article requests the people's court to determine the promoter of the company to be jointly and severally liable with the defendant shareholder, the people's court shall uphold the request. The promoter of the company may institute recourse against the defendant shareholder after having assumed the liabilities.
In the event that a shareholder fails to fulfill or fully fulfill his/her capital contribution obligation when the company increases its capital, as a result of which a plaintiff who brings a lawsuit in accordance with Paragraphs 1 or 2 of this Article requests the people's court to hold a director or senior management person liable on the ground that the failure of the director or senior management person to fully perform his/her obligation under Paragraph 1 of Article 148 of the Company Law leads to the insufficient capital contribution, the people's court shall uphold the request. The director or senior management person may institute recourse against the defendant shareholder after having assumed the liabilities.

Article 14    Where a shareholder withdraws his/her capital contribution, the people's court shall uphold the claim made by the company or other shareholders that the shareholder shall return to the company the principal and interest of the contribution, and that other shareholders, directors, senior management personnel or the actual controller who renders assistance in the withdrawal shall be jointly and severally liable.
The people's court shall uphold the claim made by a creditor of the company requiring that the shareholder who has withdrawn his/her capital contribution be additionally liable, to the extent of the principal and interest of the contribution withdrawn, for compensating the debts of the company that are unable to be repaid, and that other shareholders, directors, senior management personnel or the actual controller who renders assistance in the withdrawal be jointly and severally liable therefor. The people's court shall not uphold the same claim made by other creditors if the shareholder who withdraws the contribution has assumed the aforesaid liability.

Article 15    Where a third party has lent money to the promoter to assist him/her establish a company and the two parties have expressly agreed that the promoter will withdraw the contribution to repay the third party after capital verification or incorporation of the company, while the promoter has withdrawn the contribution as agreed to repay the third party but fails to make good the contribution to the company, therefore the relevant right owner requests the third party to be jointly and severally liable for the liabilities arising out of the withdrawal of contribution by the promoter, the people's court shall uphold such a request.

Article 16    Unless otherwise agreed upon by the parties concerned, the people's court shall not uphold a claim made by a company, other shareholders or a creditor of the company requesting an investor to make good the capital contribution on the ground that the non-monetary assets that meet the statutory requirements and are made as contribution have depreciated due to changes in the market or other objective factors.

Article 17    Where, due to the failure to perform or fully perform his/her capital contribution obligation or the withdrawal of his/her contribution by a shareholder, the company, pursuant to its articles of association or the resolution of its shareholders' meeting, imposes appropriate and reasonable restrictions on the shareholder's right to request for profit distribution, the preemptive right of new share subscription, the right to request for distribution of remaining property, etc., the people's court shall not uphold the claim made by the shareholder requesting the court to determine the restrictions as invalid.

Article 18    Where a shareholder of a limited liability company fails to perform his/her capital contribution obligation or withdraws all the contribution made, and still fails to make or return the contribution within a reasonable time period despite being so urged by the company, as a result of which the company disqualifies the shareholder pursuant to the resolution of the shareholders' meeting, the people's court shall not uphold the claim made by the shareholder requesting the court to determine the disqualification as invalid.
Under the circumstance described in the preceding Paragraph, the people's court shall specify in the judgment that the company shall promptly undergo the statutory capital reduction procedures or have other shareholders or a third party to pay the appropriate contribution. Before the company undergoes the statutory capital reduction procedures or has other shareholders or a third party to pay the appropriate contribution, if a creditor of the company requests relevant parties to bear corresponding liabilities in accordance with Article 13 or Article 14 herein, the people's court shall uphold such a request.

Article 19    Where a shareholder of a limited liability company transfers his/her equities despite non-performance or partial performance of his/her capital contribution obligation, of which the transferee has or should have knowledge, the people's court shall uphold the claim made by the company requesting that the shareholder shall fulfill his/her capital contribution obligation and that the transferee shall be jointly and severally liable therefor. Where a creditor of the company brings a lawsuit against the shareholder in accordance with Paragraph 2 of Article 13, the people's court shall uphold the claim requesting the aforesaid transferee to be jointly and severally liable therefor.
Unless otherwise agreed upon by the parties concerned, after the transferee has assumed the liabilities under the preceding Paragraph, the people' court shall uphold the claim by the transferee for recourse against the shareholder who fails to perform or fully perform his/her capital contribution obligation.

Article 20    Where a shareholder of a company fails to perform or fully perform his/her capital contribution obligation or withdraws his/her contribution, and the company or other shareholders request the shareholder to make or return full contribution to the company, the people's court shall not uphold the defense made by the shareholder on the ground of limitation.
Where within the limitation of action for his/her creditor's right, a creditor of the company, in accordance with Paragraph 2 of Article 13 or Paragraph 2 of Article 14 herein, requests the shareholder who fails to perform or fully perform his/her capital contribution obligation or withdraws his/her contribution to bear the liability for compensation, the people's court shall not uphold the defense made by the defendant shareholder on the ground that the limitation of action for making or returning the contribution has lapsed.

Article 21    In the event that the parties concerned dispute over whether the capital contribution obligation has been fulfilled, if the plaintiff furnishes evidence substantiating his/her reasonable doubt over the fulfillment of the capital contribution obligation by the shareholder, the defendant shareholder shall bear the burden of proof to prove that he/she has fulfilled the obligation.

Article 22    A party that brings a lawsuit to the people's court for affirming his/her shareholder qualification shall list the company as the defendant. Parties with an interest in the disputed equities shall attend the proceedings as third parties.

Article 23    Where the parties concerned dispute over the ownership of certain equities, the party requesting the people's court to affirm his/her ownership of the equities shall prove any of the following facts:
(1) That he/she has made, or subscribed to the contribution to the company, and the contribution or subscription is not in violation of the mandatory provisions of laws and regulations; or
(2) That he/she has succeeded to the equities of the company as a transferee or in other forms, and the succession is not in violation of the mandatory provisions of laws and regulations.

Article 24    Where, after a party concerned has performed his/her capital contribution obligation or succeeded to the equities in accordance with the law, the company fails to issue thereto the capital contribution certificate, register the party as a shareholder in the register of shareholders or register the party with the relevant company registration authority in accordance with Article 32 or Article 33 of the Company Law, the people's court shall uphold the claim made by the party requesting the company to fulfill the said obligations.

Article 25    Where the actual investor of a limited liability company has concluded a contract with the nominee investor specifying that  the actual investor shall make the contribution and therefore acquire the investment equities and that the nominee investor shall be registered as the nominee shareholder, and the actual investor and the nominee shareholder now dispute over the validity of the contract, the people's court shall determine the contract as valid as long as no circumstance prescribed by Article 52 of the Contract Law exists.
In the event that the actual investor referred to in the preceding Paragraph has disputes with the nominee shareholder over the ownership of investment equities, the people's court shall uphold the claim against the nominee shareholder made by the actual investor on the ground that he/she has performed the actual capital contribution obligation. The people's court shall not uphold the defense made by the nominee shareholder denying the rights of the actual investor by replying on the record of the register of shareholders or the registration with the relevant company registration authority.
The people's court shall not uphold the claim made by the actual investor, without the consent of more than half of all other shareholders of the company, requesting the company to change its shareholders, issue the capital contribution certificate, record him/her in the register of shareholders, record him/her in the company's articles of association, and to register with the company registration authority concerned.

Article 26    Where a nominee shareholder transfers, pledges or otherwise disposes of the equities registered under his/her name, and the actual investor, on the ground that he/she has the actual entitlement to the equities, requests the people's court to determine the equity disposal as invalid, the people's court may handle the case with reference to Article 106 the Property Law.
If the actual investor suffers losses because of the equity disposal by the nominee shareholder, the people's court shall uphold the claim made by the actual investor requesting the nominee shareholder to bear the liability for compensation.

Article 27    Where a creditor of a company, on the ground that a shareholder registered with the relevant company registration authority fails to perform his/her capital contribution obligation, requests the people's court to order the shareholder to be additionally liable, to the extent of the principal and interest not contributed, for compensating the debts of the company that are unable to be repaid, the people's court shall not uphold the defense made by the shareholder that he/she is only a nominee shareholder rather than an actual investor.
The people's court shall uphold the claim for recourse against the actual investor made by the nominee shareholder who has paid the compensation in accordance with the preceding Paragraph.

Article 28    Where, after equity transfer but before registration of changes with the relevant company registration authority, the original shareholder transfers, pledges or otherwise disposes of the equities still registered thereunder, and the transferee shareholder requests the people's court to determine the disposal as invalid on the ground that he/she has the actual entitlement to the equities, the people's court may handle the case with reference to Article 106 of the Property Law.
If the transferee shareholder suffers losses because of the equity disposal by the original shareholder, and therefore requests the people's court to order the original shareholder to bear the liability for compensation and the director, senior management person or the actual controller who is at fault for the delayed registration of changes to bear corresponding liabilities, the people's court shall uphold the request. In the event that the transferee shareholder him/herself is also at fault for the delayed registration, the people's court may appropriately consider mitigating punishments against the said director, senior management person or the actual controller.

Article 29    If a person fraudulently uses the name of another person to make contribution and registers this other person as a shareholder with a company registration authority, the first-mentioned person shall bear the corresponding liabilities. The people's court shall not uphold the claim made by the company, other shareholders or a creditor of the company requesting the person whose name is fraudulently used by the personator for registration as a shareholder to make good the contribution or be liable for compensating the debts of the company that are unable to be repaid on the ground that he/she has failed to perform the capital contribution obligation.