Ma is a shareholder of a sole proprietorship limited liability company, why is he liable for the company's debts?
Author/Lawyer Hu Wenyou
【Brief Facts of the Case】
Company S is a sole proprietorship limited liability company by natural persons, and Mr. Ma is a shareholder of the company. In July 2022, Wang reached a verbal cooperation agreement with Company S, agreeing that the two parties would cooperate to provide third-party supply services for multi-function all-in-one computers, projectors, and operating system procurement projects; Mr. Wang will pay the purchase cost in advance, and one month after Company S signs the purchase contract with the third party, the advance payment will be returned to Mr. Wang, and the profits after deduction will be shared equally between the two parties.
In October 2022, Company S signed a Government Procurement Contract with a social service center, with a contract amount of RMB 234,800. Wang paid 118,000 yuan in advance for procurement expenses, and the profit after deduction was 116,800 yuan. Therefore, Wang's profit should be 58,400 yuan, that is, Company S should pay 176,400 yuan to Wang.
One month after the purchase contract was signed, after Wang's repeated urgings, Company S refused to pay for various reasons. Wang sued the court, demanding that Company S and Ma pay the contract cost and profit of 176,400 yuan and interest loss.
【Verdict】
1. The defendant Company S shall pay the plaintiff Wang 118,000 yuan and profits of 58,400 yuan within 10 days from the effective date of this judgment, and pay interest;
2. Defendant Ma is jointly and severally liable for the above-mentioned amounts.
[Lawyer's Interpretation]
Article 509 of the Civil Code of the People's Republic of China stipulates that the parties shall fully perform their obligations in accordance with the agreement. The parties shall follow the principle of good faith and perform obligations such as notification, assistance, and confidentiality in accordance with the nature, purpose, and transaction habits of the contract. Article 577 stipulates that if a party fails to perform its contractual obligations or the performance of its contractual obligations does not conform to the agreement, it shall bear the liability for breach of contract such as continuing to perform, taking remedial measures or compensating for losses. Article 579 stipulates that if one of the parties fails to pay the price, remuneration, rent or interest, or fails to perform other monetary obligations, the other party may request payment from the other party.
In this case, Company S argued that the cooperation between the two parties to provide services to a third party was a partnership. However, the parties did not agree on matters related to the partnership, nor did they clarify the relevant agreement on risk sharing, which could not prove that the parties were in a partnership. According to the agreement between the two parties, Wang advanced 118,000 yuan, and after deducting Wang's expenses, the remaining 116,800 yuan should be divided equally as profits. Therefore, Company S should fulfill the obligation to pay 50% of Wang's profits, that is, 58,400 yuan.
Company S argued that the third party had not yet paid the contract price, but that the contract between Company S and Wang had already entered into force. Regardless of whether the contract between Company S and the third party is fulfilled as agreed, Company S shall fulfill its contractual obligations with Mr. Wang and pay the corresponding amount.
In addition, Company S is a wholly foreign-owned limited liability company, and Mr. Ma is a shareholder of the company. According to Article 63 of the Company Law of the People's Republic of China, if a shareholder of a one-person limited liability company cannot prove that the company's property is independent of the shareholder's property, he shall be jointly and severally liable for the company's debts. Ma could not prove that the company's property was independent of his own property, so he should be jointly and severally liable.