SPC Judgment: Internal Set-off After Capital Withdrawal Cannot Defeat Third Parties

Reference Case: Zhao Liangchen v. Shen Min and Hainan Shengde Huankai Real Estate Co., Ltd.

Where a shareholder rapidly transfers paid-in capital back to a personal account after incorporation and cannot prove that the funds were lawfully used for the company's business, the conduct constitutes withdrawal of capital. A later shareholder resolution internally setting off loans against the contribution has only internal effect, cannot defeat outside creditors, and does not prove that the contribution was replenished.

Holding

Where a shareholder rapidly transfers paid-in capital back to a personal account after incorporation and cannot prove that the funds were lawfully used for the company's business, the conduct constitutes withdrawal of capital. A later shareholder resolution internally setting off loans against the contribution has only internal effect, cannot defeat outside creditors, and does not prove that the contribution was replenished.

Issues

withdrawal of capital contributionspost hoc internal set-off by shareholder resolutionopposability against third parties