Does an Investor Have the Shareholder’s Right Before the Capital Contribution is Transferred to FIE Legally?

2020/1/8

Some investors do not understand the connection between the transfer of capital and shareholder rights. Can they enjoy shareholder rights as long as they actually contribute? Or do they have to complete the property transfer formalities to enjoy shareholder rights?

The FIE contract stipulates that the investor should contribute capital by property ownership to the FIE. The investor has actually contributed capital to the FIE, but the property as capitalization hasn't been transferred to the FIE legally. Under such situation, when the investor has delivered the property to the FIE for use and finished registration of legal right transfer within the reasonable period as specified by the court, the people's court should deem the party to have finished contributing capital or provided the cooperation condition.

If the FIE or its shareholders have enough evidence to prove the losses and damages suffered from delaying transfer of legal right, the people's court should support the claim of indemnification.

If the investors use cash or substance to contribute capital and it is not necessary to register the transfer of property right, then the investor should be deemed to have fulfilled the capital-contributing obligation when the cash or substance is delivered to the FIE.

If the investor use land use right for capital contribution, this land should be delivered to the FIE, and the land use right should be transferred to the FIE. However, if the land has been delivered to FIE but its legal right hasn't been transferred, the investor should have the shareholder's right as long as he/she has completed the legal procedure of land use right transfer within a reasonable period as specified by the court. 

If the investors use intellectual property to contribute capital, the investor should not only give the patented technology or trademark to the FIE, but also need to go through the corresponding ownership alteration procedures.

There are many ways for investors to contribute capital. We recommend that foreign investors hire Chinese lawyers to go through the capital contribution procedures in order to reduce unnecessary hassles and enable you to enjoy shareholder equity as soon as possible.