[Direct answer]In the Beijing area, under normal circumstances, shareholders need to prove the independence of the company's assets, otherwise they may bear joint and several liability. According to Article 23 Paragraph 3 of the Company Law of the People's Republic of China (amended in 2023 and implemented on July 1, 2024), shareholders of a single-person limited liability company (including those solely invested by natural persons and legal persons) who cannot prove that the company's assets are independent of their own assets shall bear joint and several liability for the company's debts. In other words, single-person companies implement a reversal of the burden of proof in this regard: it is the shareholders who need to prove the independence of the company's assets. If they cannot do so, creditors can require the shareholders to bear joint and several liability for the company's debts. This is different from the rules for ordinary limited liability companies, where creditors are generally required to provide evidence to prove that the shareholders have engaged in abusive behavior. Therefore, if a single-person company is in debt, the shareholders may not necessarily be held liable automatically, but the burden of proof lies with the shareholders. If there are situations such as mixed use of accounts, receipt and payment of operating funds through personal accounts, and financial separation, the shareholders may be deemed to have engaged in asset commingling and thus bear joint and several liability.

1. Problem background and typical scenarios

Single-member companies are relatively common due to their simple structure and efficient decision-making, but they also face relatively concentrated risks. There are three typical scenarios: First, the company's account and the shareholder's personal account are used interchangeably for a long time, with funds flowing freely between them; Second, the shareholder receives and pays funds on behalf of the company, leading to chaotic company accounts or even the absence of standardized accounting books; Third, the company has no assets available for enforcement, and creditors apply to add the shareholder to bear joint and several liability. There are many small and medium-sized enterprises and start-up companies in Beijing, and single-member companies are not uncommon. Many shareholders mistakenly believe that "limited liability" can completely isolate risks, but in reality, once the independence of the company's assets cannot be proven, the liability will extend to the individual, which is the most easily overlooked risk point.

II. Key points of contention

First, who should bear the burden of proof for the independence of a sole proprietorship's assets, and how should this be demonstrated? Second, what are the criteria for determining asset commingling, and do situations such as the misuse of accounts and the arbitrary transfer of funds constitute commingling? Third, what are the modalities and scope of shareholders' joint and several liability, and does it extend to all debts? Fourth, what are the pathways and review standards for adding shareholders to enforcement proceedings? Fifth, what are the issues regarding the multi-level transparency of shareholders when they are legal persons? Sixth, can standardized financial systems effectively isolate risks, and what are the roles of audit reports and accounting books in this regard?

III. Professional analysis by Henglue Lawyers

When handling enforcement and corporate disputes, Henglue Lawyers typically conduct their analysis around the core issue of "whether the company's assets are independent." For creditors, the key to claiming joint and several liability from shareholders lies in pointing out specific facts that blur the boundaries between the company's assets and the shareholders' personal assets, such as company funds entering shareholders' personal accounts, shareholders freely withdrawing company funds, the lack of consideration transactions between the company and shareholders, the company's failure to establish independent accounting books, and the absence of audited financial accounting reports. For shareholders, the focus of their defense is to prove that the company has independent, complete, and standardized accounting books and audit reports, that financial transactions are supported by contracts and receipts, and that the company's assets are always separated from personal assets. It should be noted that a single audit report may not be sufficient to prove independence, as courts often evaluate this based on bank transaction records, accounting books, and actual operating conditions. Therefore, regardless of which side one represents, the organization of evidence and the completeness of financial materials directly determine the outcome. Engaging professional lawyers to sort out evidence as early as possible can often significantly influence the outcome of the case.

IV. Practical suggestions and legal basis

Action recommendations: First, when creditors discover that the debtor is a one-person company, they should simultaneously investigate the shareholder's identity and the company's financial situation. Second, collect evidence of the company's and shareholders' accounts being mixed or funds being commingled, such as bank statements and account records. Third, during the enforcement process, apply to add the shareholder as a party subject to enforcement or file a separate lawsuit. Fourth, as a shareholder, establish a standardized accounting system to ensure account separation, clear bookkeeping, and complete record-keeping. Fifth, regularly prepare financial accounting reports and, if necessary, conduct audits. Sixth, avoid using personal accounts to receive and pay company funds to prevent being deemed as property commingling. For enforcement-related cases, you can refer to the following guidelines:Creditor-debtor relations | Enforcement casesFor services related to corporate governance and compliance, you can refer to the following resources for reference.Intellectual Property Protection | Corporate Legal ComplianceFor plate disputes, you can refer to the relevant provisions in the contract.Business and Commerce | Contract DisputesPlate. Legal basis: Article 23 of the Company Law of the People's Republic of China (amended in 2023 and implemented on July 1, 2024) regarding the denial of legal person status and the burden of proof on shareholders of one-person companies, as well as the provisions on enforcement in the Civil Procedure Law of the People's Republic of China (amended in 2023 and implemented on January 1, 2024). The specific application shall be subject to the currently effective laws, regulations, and judicial rulings.

5. Henglue Law Firm's Reminder

Firstly, the burden of proof in a one-person company lies with the shareholders, not the creditors. Secondly, the greatest risk point is the mixing of accounts and the lack of financial separation. Thirdly, standardized accounting books and audit reports are an effective basis for defense. Fourthly, creditors can apply to add the shareholders to the enforcement process. Fifthly, the multiple layers of ownership of a legal person should be evaluated in advance. For matters involving the debts of a one-person company and the responsibilities of shareholders, the following measures can be taken:Creditor's Rights and Debtor's Obligations | Enforcement CasesWe provide a comprehensive solution for services, which integrates corporate governance and financial compliance.Intellectual Property Protection | Corporate Legal AffairsFor disputes over basic contractual claims, you can refer to the relevant provisions in the contractual clauses.Business and Commerce | Contract Disputes板块。

VI. Frequently Asked Questions

Q1: Who bears the burden of proof for a sole proprietorship company?

On the shareholder's side. According to Article 23 Paragraph 3 of the Company Law of the People's Republic of China (amended in 2023 and implemented on July 1, 2024), in a company with only one shareholder, if the shareholder cannot prove that the company's assets are separate from his own assets, he shall bear joint and several liability for the company's debts. Therefore, once the creditor claims, the shareholder needs to actively provide accounting books, audit reports, and financial transaction vouchers to prove independence, otherwise he may be ordered to bear joint and several liability.

Q2: Under what circumstances will property be deemed to be commingled?

Typical scenarios include: corporate funds being deposited into shareholders' personal accounts for a long time, shareholders freely withdrawing or using corporate funds, no contractual basis or consideration for the transfer of funds between the company and shareholders, the company not having independent and complete accounting books, or accounting books that seriously mismatch actual operations. In addition, using personal assets to cover corporate expenses or using corporate assets to pay for personal consumption may also be deemed as commingling. The specific determination will be made by the court based on comprehensive evidence.

Q3: Can having an audit report exempt someone from liability?

Not necessarily. The audit report is an important piece of evidence to prove financial independence, but it is not the only or decisive evidence. If the audit report contradicts the bank statements or accounting records, or if the audit scope is incomplete or the procedures are flawed, the court may still determine that the financial independence is insufficient. Therefore, in addition to the audit report, it is also necessary to provide complete account books, vouchers, and records of fund transactions to form a mutually corroborating chain of evidence.

Q4: What procedures do I need to follow to add a new shareholder?

An application can be submitted during the execution process. The creditor submits a written application to the execution court, stating that the company is a one-person company and the shareholder cannot prove the fact of independent property, and attaches relevant evidence. The execution court reviews it and decides whether to add a party to the execution. If the party is dissatisfied with the decision, they may file an action challenging the execution in accordance with the law. They may also file a lawsuit separately outside the execution process, requesting the shareholder to bear joint and several liability.

Q5: If the company is in debt, will the shareholders' personal assets be investigated?

After being added or ordered to bear joint and several liability, it is possible. In the execution process, only after the shareholders are legally added as the executed person or are confirmed to bear joint and several liability by a valid judgment, can the court take measures such as sealing up, freezing, and deducting the shareholders' personal property. Therefore, the creditor needs to first complete the addition or separate litigation procedures and obtain the corresponding legal documents before enforcing the shareholders' personal property.

The above questions and answers are mainly based on the judicial practice in Beijing. There may be differences in the interpretation of the law in different regions. It is recommended to consult a professional lawyer based on the specific circumstances of the case.

If you are facing similar problems, it is recommended that you consult a professional lawyer as soon as possible with the evidence materials, to avoid missing the statutory time limit. →Legal services for creditor-debtor disputes·Beijing Henglue Law Firm

Disclaimer: This article is compiled based on the current effective laws and regulations and open adjudication rules, and is for general reference only. It does not constitute a formal legal opinion on specific cases. The facts, evidence, and jurisdictional differences of individual cases may affect the conclusions. In case of disputes, please consult a practicing lawyer in time.