Founding shareholders leaving a project early: handling methods under the latest legal regulations

The early leave of a founding shareholder from a project not only affects the management and business operations of an enterprise but may also damage the company’s credibility and reputation. Therefore, identifying appropriate handling measures in compliance with legal regulations has become a practical necessity for relevant stakeholders. Through the article below, NPLaw provides readers with essential information regarding the concept and legal provisions governing such an issue.

I. Current situation relating to founding shareholders leaving a project early

In corporate practice, particularly in newly established joint stock companies, the situation where founding shareholders leave a project at an early stage occurs quite frequently. Such a circumstance may significantly affect the company’s operations.

Accordingly, if the leave of a founding shareholder is not properly anticipated and prepared for in advance, it may lead to the following consequences:

• Impact on the company’s shareholding structure: The leave of a founding shareholder may affect both the shareholding ratio within the company and the company’s governance structure.
• Associated legal responsibilities: A joint stock company must have at least three shareholders under Point b Clause 1 Article 111 of the Law on Enterprise 2020, as amended and supplemented in 2025. Therefore, if the early leave of a founding shareholder causes the company to fail to satisfy the minimum number of shareholders required by law, the company shall be required to implement procedures for amendment of its enterprise registration contents.

II. The concept of founding shareholders leaving a project early

1. What is meant by a founding shareholder leaving a project early?

Pursuant to Clause 4 Article 4 of the Law on Enterprise 2020, as amended and supplemented in 2025, a founding shareholder is defined as a shareholder owning at least one ordinary share and signing the list of founding shareholders of a joint stock company.

In addition, Clause 3 Article 120 of the same Law provides that ordinary shares of founding shareholders may be freely transferred to other founding shareholders and may only be transferred to non-founding shareholders upon approval by the General Meeting of Shareholders, within three years from the date of issuing the Enterprise Registration Certificate. 

Accordingly, the early leave of a founding shareholder refers to the situation where one or more members of the founding group of a joint stock company decide to cease participating in management activities or withdraw capital from the enterprise within the three-year period.

2. Is there any difference between leaving a project early and being removed from a managerial position?

3. Common reasons why founding shareholders leave a project early

Although the law does not specifically enumerate the reasons why founding shareholders leave projects early, practical experience shows that the following are among the most common causes:

• Internal conflicts: Founding shareholders may disagree on vision, development strategy, allocation of benefits, or other matters.
• Financial pressure: Newly established companies may not generate immediate revenue, while founding shareholders may require income for personal purposes.
• Change in personal orientation: A founding shareholder may no longer consider the business model suitable and therefore wishes to withdraw early in order to minimize potential future losses.

III. Legal provisions relating to founding shareholders leaving a project early

1. How does current law regulate the legal status of founding shareholders in a joint stock company?

Accordingly, Clauses 1 and 2 Article 115 of the Law on Enterprise 2020, as amended and supplemented in 2025, specify the rights of ordinary shareholders in general and founding shareholders in particular, including:

• Attending and speaking at meetings of the General Meeting of Shareholders and exercising voting rights directly, through authorized representatives, or by other methods prescribed by the company charter and applicable law.
• Receiving dividends at the level determined by the General Meeting of Shareholders.
• Receiving priority rights to purchase newly issued shares in proportion to each shareholder’s ownership ratio of ordinary shares in the company.
• Freely transferring shares to others, except in cases prescribed under Clause 3 Article 120, Clause 1 Article 127 of the Law, and other relevant legal provisions.
• Examining, searching, and extracting information regarding names and contact addresses in the list of voting shareholders; requesting correction of inaccurate information relating to themselves.
• Receiving a portion of the remaining assets corresponding to their shareholding ratio upon dissolution or bankruptcy of the company.
• Examining, searching, and extracting minutes books, resolutions and decisions of the Board of Directors, semi-annual and annual financial statements, reports of the Inspection Committee, contracts and transactions subject to approval by the Board of Directors, and other documents, except for documents relating to trade secrets or business secrets of the company.
• Requesting convening of meetings of the General Meeting of Shareholders.
• Requesting the Inspection Committee to examine specific issues relating to the management and operation of the company where deemed necessary.
• Other rights prescribed by law and the company charter.

In addition to the rights of founding shareholders, the Law on Enterprise 2020, as amended and supplemented in 2025, also prescribes obligations of these shareholders under Article 119, including:

• Fully and punctually paying for the subscribed shares.
• Refraining from withdrawing contributed capital in the form of ordinary shares from the company under any circumstances, except where such shares are repurchased by the company or another person.
• Complying with the company charter and internal management regulations.
• Complying with resolutions and decisions of the General Meeting of Shareholders and the Board of Directors.
• Maintaining confidentiality of information provided by the company in accordance with the company charter and applicable law; using such information solely for exercising and protecting lawful rights and interests; and refraining from disseminating, copying, or sending such information to other organizations or individuals.
• Other obligations prescribed by law and the company charter.

2. How is the capital contribution period of founding shareholders regulated?

Clause 1 Article 113 of the Law on Enterprise 2020, as amended and supplemented in 2025, clearly provides the following regarding the capital contribution period of founding shareholders:

• Shareholders must fully pay for the subscribed shares within 90 days from the date of issuance of the Enterprise Registration Certificate, except where the company charter or share subscription agreement stipulates a shorter period. If shareholders contribute capital by assets, the time required for transportation, importation, and completion of administrative procedures for transfer of ownership of such assets shall not be included in the capital contribution period.

Determining the capital contribution deadline accurately will help enterprises select appropriate handling measures where founding shareholders leave the project early.

3. How should a situation be handled where a founding shareholder leaves the project before fully contributing capital?

Where a founding shareholder leaves the project before fully contributing capital, Clause 3 Article 113 of the Law on Enterprise 2020, as amended and supplemented in 2025, prescribes the following handling methods:

• A shareholder who fails to pay for the subscribed shares shall automatically cease to be a shareholder of the company and may not transfer the right to purchase such shares to another person.
• A shareholder who partially pays for the subscribed shares shall only have voting rights, dividend rights, and other rights corresponding to the number of shares already paid for, and may not transfer the right to purchase unpaid shares to another person.
• Unpaid shares shall be deemed unsold shares, and the Board of Directors shall have the right to sell them.
• Within 30 days from the expiration date for full payment of subscribed shares as prescribed under Clause 1 of this Article, the company must register adjustment of its charter capital corresponding to the par value of the shares fully paid for, unless all unpaid shares have been sold within such period, and must register changes to the founding shareholders.

4. How are rights and financial obligations arising prior to the founding shareholder’s leave handled?

Pursuant to Clause 4 Article 113 of the Law on Enterprise 2020, as amended and supplemented in 2025:

• A shareholder who has not paid or has not fully paid for the subscribed shares shall be liable corresponding to the total par value of the subscribed shares with respect to the company’s financial obligations arising before the company registers adjustment of its charter capital in accordance with Point d Clause 3 of this Article. Members of the Board of Directors and the legal representative shall take joint liability for damages arising from failure to comply or improper compliance with Clause 1 and Point d Clause 3 of this Article.

Based on the spirit of this provision, it may be understood that founding shareholders remain liable, corresponding to the par value of the subscribed shares, for the company’s financial obligations arising prior to the date on which the company registers the adjustment of its charter capital.

IV. Questions regarding founding shareholders leaving a project early

1. May a founding shareholder who leaves a project early freely transfer their shares?

Within three years from the date on which the company is granted the Enterprise Registration Certificate, ordinary shares owned by a founding shareholder may only be freely transferred to another founding shareholder and may only be transferred to a person who is not a founding shareholder upon approval by the General Meeting of Shareholders according to Clause 3 Article 120 of the Law on Enterprise 2020, as amended and supplemented in 2025.

Accordingly, within three years from the date on which the enterprise acquires legal status, a founding shareholder may only transfer ordinary shares to a person outside the company if such transfer is approved by the General Meeting of Shareholders.

2. How does the early leave of a founding shareholder affect the corporate governance structure?

The early leave of a founding shareholder may affect the corporate governance structure in several respects, including:

• Changes in shareholding ratios among shareholders: The leave of a founding shareholder may require the company to reallocate shareholding ratios or offer shares for sale, thereby changing the list of shareholders.
• Impact on the company model: If, after the leave of the founding shareholder, the company no longer satisfies the minimum requirement of three shareholders, the enterprise must additionally implement procedures for conversion of its corporate form.

Accordingly, understanding the relevant legal regulations in order to adopt appropriate handling measures plays a particularly important role where a founding shareholder leaves the project early.

3. Does the company have the right to request repurchase of the founding shareholder’s shares when they leave the project?

Pursuant to Clause 1 Article 133 of the Law on Enterprise 2020, as amended and supplemented in 2025:

• The Board of Directors has the right to decide on the repurchase of no more than 10% of the total number of sold shares of each type within a period of 12 months. In other cases, the repurchase of shares shall be decided by the General Meeting of Shareholders.

4. What issues commonly lead to disputes relating to founding shareholders leaving a project early?

Disputes relating to founding shareholders leaving a project early commonly arise from the following issues:

• Disputes over share ownership: The early leave of a founding shareholder may alter the shareholding ratios of the remaining shareholders, thereby easily leading to disputes concerning their rights and interests.
• Disputes regarding share valuation: Determining a share value that is accurate and consistent with market conditions is also an issue on which the parties often find it difficult to reach agreement.

These are merely the most common disputes arising where founding shareholders leave a project early. In practice, depending on the specific circumstances of each enterprise, such disputes may be more diverse and complex.

5. After a founding shareholder leaves the company, do their voting rights remain valid?

Voting rights are attached to the number of shares held by shareholders. Therefore, once a founding shareholder leaves the project and withdraws from the company, their voting rights shall no longer remain effective.

V. Why should you seek legal advice from NPLaw regarding issues related to founding shareholders leaving a project early?

Where issues arise relating to founding shareholders leaving a project early, seeking legal advice is extremely important. NPLaw - a reputable legal service provider - is trusted by many enterprises for the following reasons:

• Our team possesses extensive practical experience and in-depth understanding of the Law on Enterprises in general and issues relating to founding shareholders leaving projects early in particular.
• In addition to providing preliminary legal advice, we also assist clients in preparing dossiers and carrying out relevant legal procedures (such as charter capital reduction procedures).
• We help clients save time and effort in researching legal regulations and handling administrative procedures with competent state authorities.

Seeking legal counsel from NPLaw in these circumstances not only helps resolve immediate issues but also assists enterprises in establishing a solid long-term legal foundation.

The above information is provided for reference purposes only. Should you require detailed advice regarding a specific case, please contact NPLaw Firm for immediate consultation.