Registered Capital against Paid up Reality in a Chinese Venture
PRC Company Law reforms mandate full paid-in capital settlement within five years, exposing unpaid registered equity to creditor acceleration and forfeiture.
Secondary Transfer Liability Article 88
Meaning
Statutory transfer liability rules allocate legal exposure between buyers and sellers when equity containing unfulfilled capital obligations is assigned to new investors. Governing equity transactions in Chinese corporate practice, secondary transfer liability article 88 establishes joint and secondary debt exposure for assigned equity with unpaid subscription capital. The rule protects corporate creditors by ensuring equity transfers do not extinguish unpaid capital liabilities.
Transferees and original assignors share statutory duties based on whether contribution deadlines had passed prior to transfer.
Transferee Priority
Equity buyers assume primary obligation to pay remaining capital subscriptions upon completion of registration filings. Under secondary transfer liability article 88, the transferee assumes the primary duty to make capital payments as they mature. If the buyer fails to pay accelerated or scheduled capital calls, corporate creditors can pursue the seller for secondary payment coverage.
The statutory rule prevents investors from dumping capital calls onto shell entities.
Assignor Exposure
Sellers retain secondary liability for unpaid capital when assignees default on subscription commitments. Where capital calls were already overdue at the time of transfer, assignors share joint and several liability alongside transferees.
Due-Date Distinction
Legal exposure depends directly on whether capital payment deadlines matured before or after equity assignment execution. Transfers executed before capital due dates trigger secondary liability for assignors if transferees fail to perform later. Transfers executed after contribution deadlines passed create immediate joint and several liability across both contracting parties.
Meticulous due diligence on subscription schedules protects sellers from unexpected secondary capital demands.