China's "Company Law" clearly stipulates that shareholders shall not contribute their capital at the price of labor services, but it does not prohibit providing labor services to the company as the consideration for equity transfer. The company's shareholders' meeting decided that employees would obtain a certain percentage of shares in the company by management technology (no cash investment) and participate in the company's dividends.
The "management technology shares" here is essentially the consideration that employees need to pay to receive the company's equity, not the "labor contribution". If the company or shareholders claim that the decision of the shareholders' meeting violates the mandatory provision that "shareholders are not allowed to contribute capital with labor services", the decision of the shareholders' meeting is invalid and the court will not support it.
Shareholders can't contribute capital with labor services.
Recently, a client named Li asked our law firm about something. Li and two other friends want to set up a company, and the other two friends each contribute 500,000 yuan. Because of Li's rich experience and ability, two friends agreed that Li should not contribute in cash, but in labor services. Li asked us, with his rich experience and ability, how much investment is appropriate?
We told Li that when establishing a limited company, the shareholders' mode of investment is bound by the company law, and their rich experience and ability cannot be used as shares of the company.
In practice, we do not deny that personal ability largely determines the company's profit, and even determines whether the company can make a profit. However, as an enterprise legal person, the company should have independent property, and it is against the original intention of the company for shareholders to provide labor services independently.
In addition, according to Article 27 of the Company Law of People's Republic of China (PRC), shareholders can make capital contributions in cash, or in kind, intellectual property rights, land use rights and other non-monetary properties that can be valued in money and transferred according to law. However, except for the property that cannot be used as capital contribution as stipulated by laws and administrative regulations.
Non-monetary property as capital contribution shall be evaluated and verified, and its value shall not be overestimated or underestimated. Where laws and administrative regulations provide for valuation, such provisions shall prevail.
Article 14 of the Regulations of the People's Republic of China on the Administration of Company Registration: The mode of shareholders' capital contribution shall conform to the provisions of Article 27 of the Company Law, but shareholders shall not make capital contribution at a fixed price with labor service, credit, natural person's name, goodwill, franchise or secured property.
Therefore, based on the above analysis, the property that shareholders of a limited company can contribute at a fixed price should be monetary property or non-monetary property. Non-monetary property must meet the following conditions: first, it can be valued in money; Second, it can be transferred according to law; Third, in accordance with the provisions of laws and administrative regulations, you can invest in shares. Li's experience and ability can't be valued and transferred in currency according to law, and administrative regulations clearly stipulate that shareholders can't contribute capital by labor services.