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China¡¯s revised Company Law has systematised and codified vertical veil piercing, horizontal veil piercing, and the special rules for one-person companies. This significantly narrows the scope for shareholders and affiliated parties to evade liability, while providing creditors with a stronger legal basis for recovery. In practice, creditors are increasingly inclined to pursue supplementary, or joint and several, liability against shareholders and affiliated companies, whereas shareholders and affiliates face more stringent liability constraints.

In commercial disputes, shareholder and affiliate liability primarily arises in three scenarios:

(1) Shareholders abuse limited liability by making disguised capital withdrawals, false capital contributions, or misappropriating company funds, harming creditors¡¯ interests;

(2) Affiliated companies suffer from commingling of corporate personalities, where a shareholder controls multiple entities with intermingled assets, personnel and operations to evade debts; and

(3) Directors or senior officers breach their fiduciary duties of loyalty and diligence by engaging in related-party transactions or self-dealing, harming the company or its creditors.

Some cross-affiliate arrangements originate from attempts to obtain preferential policies or engage in formalistic tax planning; improper planning can easily give rise to risks. In addition, the widespread phenomenon of ¡°family-enterprise commingling¡± among private businesses remains a frequent trigger for disputes.

Offence

For creditors acting as claimants, the objective is to pierce the corporate veil and extend liability to shareholders and affiliated parties, thereby expanding the pool of assets available for enforcement. The key strategy can be summarised as ¡°precise characterisation of liability + a complete evidentiary chain + optimal route selection¡±.

(1) Accurately characterise the type of liability and identify the legal basis for recovery. Under article 23 of the revised Company Law, where a shareholder abuses the separate legal personality of the company and limited liability to evade debts and harm creditors¡¯ interests, the shareholder shall bear joint and several liability.

Where a shareholder controls multiple affiliated companies to carry out such conduct, each affiliated company shall bear joint and several liability for the debts of the others (horizontal veil piercing). For a one-person company, if the shareholder cannot prove that the company¡¯s assets are independent from the shareholder¡¯s own assets, the shareholder shall bear joint and several liability (reversal of the burden of proof).

The Minutes of the National Courts¡¯ Civil and Commercial Trial Work Conference further elaborate on specific circumstances including: commingling of corporate personalities; excessive domination and control (e.g. benefit transfers between parent and subsidiary, or transferring assets through sham litigation); and manifest inadequacy of capital (e.g. registered capital of RMB1 million (USD146,000) while engaging in high-risk projects worth hundreds of millions of renminbi), providing concrete guidance for creditors in pursuing liability.

(2) Build a complete evidentiary chain to underpin the claim. Drawing from the Typical Cases on Punishing Evasion of Debts issued by the People¡¯ s Courts on 30 December 2025, including the case of Chen v company B and company C, it is recommended to focus on three categories of evidence: (i) evidence of commingling, such as identical registered addresses and business scopes of affiliated companies, cross-appointments of personnel, and commingled financial accounts; (ii) evidence of abusive conduct such as misappropriating company funds, asset transfers between affiliated companies, or sham transactions; and (iii) evidence of harm and causation, demonstrating a direct causal link between the abusive conduct of the shareholder or affiliate and the creditor¡¯s inability to realise its claims.

(3) Select the optimal enforcement route to maximise efficiency. Depending on the case, creditors may choose vertical, horizontal, or dual enforcement. For example, in the first batch of typical cases on protecting foreign investors¡¯ rights released by the Supreme People¡¯s Court, specifically the dispute over liability for harming company interests in Shanghai Lan Trading v Jiang et al (2023), the creditor alleged that senior officer Jiang engaged in self-dealing with a company controlled by Jiang¡¯s spouse in breach of fiduciary duties.

The court ordered Jiang and the affiliated company to disgorge the illicit gains, illustrating a typical enforcement approach based on affiliate liability.

Defence

For shareholders and affiliates as defendants, the core objective is to uphold the separate legal personality of the company and avoid a finding of abuse of limited liability. The key lies in ¡°ex ante compliance + in-case defences + ex-post remediation¡±.

Ex ante compliance is foundational. Three areas should be addressed:

(1) Regulate shareholder capital contributions, prohibit false contributions or capital withdrawals, ensure that contributions are genuine and fully made, and retain contribution records;

(2) Maintain the independence of affiliated companies to avoid commingling of personalities (this includes financial independence, personnel independence, business independence and premises independence); and

(3) Regulate related-party transactions and senior officer conduct. Related-party transactions must comply with shareholder¡¯s meeting or board approval procedures and full disclosure of the related relationship, while senior officers must fulfil their duties of loyalty and diligence, refraining from self-dealing or misappropriation of company funds.

In-case defence is critical. In response to claimant¡¯s allegations, the defence should advance three arguments:

(1) Deny abusive conduct, submitting evidence that the conduct complied with applicable law and the company¡¯s articles of association;

(2) Deny commingling of corporate personalities, submitting evidence such as audit reports, financial statements, employment contracts, and social insurance records to demonstrate clear separation of assets, personnel, and operations between the company and its shareholders or affiliates;

(3) Deny causation, arguing that the creditor¡¯s inability to realise its claim is unrelated to the alleged conduct, but rather due to the company¡¯ s operational failures or other factors. For shareholders of a one-person company, focus should be placed on proving that the company¡¯s assets are independent from the shareholder¡¯s personal assets.

Ex-post remediation is a supplementary measure. If misconduct has occurred, shareholders and affiliates may reduce or eliminate liability by taking voluntary corrective actions such as making up capital contributions, returning misappropriated funds, or reaching a settlement with creditors.

In the offensive and defensive dynamics of commercial disputes, both claiming and defending parties must precisely grasp the legal boundaries and prioritise evidence preservation in order to gain the upper hand in disputes and maximise protection of their legitimate rights and interests.

Ma Lei is a partner at Anli Partners