Measuring shareholder liability in Macau
João Nuno Riquito and Kimberley Cheong of Riquito Advogados outline the complexities of determining shareholder liability for a company’s debts, and the options available to investors
In broad terms, incorporating a company to pursue a business opportunity is a structured way for investors to organise their joint investment, but it is also the way in which they legally limit their risk in entering into the business. If there is no special regulation in the Articles of Association, (such as the liability of dominant shareholders or of sole shareholders), limited liability shareholders have their exposure to the company’s creditors limited to the payment of their equity contribution. This means they do not have direct liability (including their personal property) for the company’s debts.
There are different types of companies available in Macau for investors to choose from. Of these, the two most common are limited liability companies by shares and limited liability companies by quotas: SA and SQ companies respectively). These have, among other differences (mainly relating to their management and decision-making structure), different share capital requirements and different regimes for shareholder liability.
Before incorporating a new entity, investors ought to assess which type of company best suits their business goals and partnership commitments, using the considerations below:
The minimum share capital of SA companies is MOP 1 million ($120,000), but only MOP 25,000 is required for SQ companies.
As a general rule, the share capital must be fully subscribed and paid with the incorporation of the company. However, in SA and SQ companies, the incorporation act may defer the payment of the shares to be paid in capital, to an amount of up to 75% for SA companies, and of up to 50% for SQ companies. This is provided that, at the time of the incorporation, an amount corresponding to at least half of the minimum share capital is paid, in cash for SA companies or, for SQ companies, in cash and in kind.
Shareholders of SQ companies are liable for paying for the shares of the other shareholders, pro rata to their shareholding and jointly with the company. Shareholders of SA companies are only liable for the payment of their shares, irrespective of if they are the original titleholders or only transferees.
It is the directors’ duty to, within the terms prescribed in the Commercial Code, seek the timely payment of the share capital. The directors, as well as other members of the corporate bodies, may incur criminal liability for actions (or lack thereof) that may result in the share capital not being fully paid up.
The directors should also propose, for shareholder approval, the distribution of the company beyond the legal boundaries (in particular, in prejudice of the protection granted by the share capital).
Last, but not least, the company’s right to the full payment of the share capital cannot be relinquished and its creditors may enforce their performance by seeking a court order to that effect.