1. Frequent transactions, high turnover, and large-value transaction monitoring risks
A single transaction of a natural person’s account that exceeds RMB 50,000 or USD 10,000 in a single day; a domestic transfer of RMB 500,000 or more (including RMB 500,000) or USD 100,000 or more (including USD 100,000) in a single or cumulative transaction with other bank accounts on the same day; or a cross-border transfer of RMB 200,000 or more (including RMB 200,000) or more (including USD 10,000) in a single or cumulative transaction with other bank accounts on the same day are all violations of large-value transaction management. Another point to note is that Shenzhen, as one of the pilot cities for large-value cash management, has a private account management amount of RMB 200,000. If the flow of funds in a private account cannot explain the specific reason, it is easy to be monitored by the bank and reported to the Anti-Money Laundering Center. In serious cases, the account may be frozen, affecting the fund use plan.
2. Concealing income, which is easy to cause tax audit risks
The fact that the income of an enterprise is not included in the public account is essentially an act of concealing income, which is a tax evasion, because the income that should be reported is not reported, and the tax that should be paid is not paid.
Article 63, Paragraph 1 of the Tax Collection and Management Law of the People’s Republic of China defines tax evasion as follows:
Tax evasion occurs when a taxpayer forges, alters, conceals, or destroys accounting books or vouchers without authorization, or lists more expenses or no or less income in the accounting books, or refuses to declare or makes false tax declarations after being notified by the tax authorities, or fails to pay or underpays the tax payable.
For taxpayers who evade taxes, the tax authorities shall recover the unpaid or underpaid taxes and late payment fees, which shall be calculated as 5/80,000 of the late payment fee from the date of unpaid taxes, and shall be fined 0.5 to 5 times. If a crime is constituted, criminal liability shall be pursued in accordance with the law.
3. Failure to distinguish between public and private, and the risk of joint and several liability for debts
The income of an enterprise is not recorded in the public account for a long time, but in the private account of the legal person or shareholders, which not only puts the company at risk of tax audit, but is also very disadvantageous to the legal person and shareholders. When an enterprise has debts, the legal person and shareholders need to bear joint and several liability for the enterprise debts with their personal and family property.
For example, A and B set up a limited liability company (C Company for short) with a registered capital of RMB 1 million. A is the legal person, and the investment ratio of A and B is 6:4. C Company is engaged in wholesale and retail business. The company’s income and cost expenditure are all in and out through A’s personal account, not through the company’s public account. One year later, due to poor management, C Company owed external debts of RMB 3 million.
If C Company’s business data is clear and there is no confusion between public and private, C Company only needs to bear external debts within the limit of the company’s profit and registered capital. Assuming that C Company’s profit is RMB 1 million, then C Company only needs to bear external debts of RMB 2 million at most.
With no distinction between public and private, the company’s funds and the personal funds of the legal person shareholders cannot be distinguished, and the profit cannot be calculated. The company needs to bear external debts of RMB 3 million.
Article 20, Paragraphs 1, 2 and 3 of the Company Law of the People’s Republic of China stipulates:
Company shareholders shall abide by laws, administrative regulations and the company’s articles of association, exercise shareholder rights in accordance with the law, and shall not abuse shareholder rights to damage the interests of the company or other shareholders; they shall not abuse the independent legal status of the company and the limited liability of shareholders to damage the interests of the company’s creditors. If a company shareholder abuses shareholder rights to cause losses to the company or other shareholders, he shall bear compensation liability in accordance with the law. If a company shareholder abuses the independent legal status of the company and the limited liability of shareholders to evade debts and seriously damage the interests of the company’s creditors, he shall bear joint and several liability for the company’s debts.
4. Accounts are not transparent, triggering a crisis of trust among partners
If it is a partnership business, the company’s income goes into the shareholder’s private account, which is equivalent to entering the shareholder’s personal “small treasury”. The company’s accounts are not clear and transparent, and it is easy for a crisis of trust between partners in the long run. The partners’ focus is not on developing business, but on internal friction in company management, which is very unfavorable for the long-term operation and development of the enterprise.
There are many cases of disbanding due to the opacity of corporate accounts, and serious cases even lead to imprisonment. The most typical case is Zhen Gongfu.