Other BriefingsComplying with New Registered Capital Rules under China’s Revised Company Law
Under the amended Company Law, shareholders of limited liability companies will be required to pay their subscribed capital within five years of corporate establishment. Companies established before the new Company Law takes effect should pay attention to the timeline to adapt to the new rules on registered capital in China.
UPDATE (July 1, 2024): On June 7, 2024, the draft Provisions on the Registered Capital Registration Management System of the PRC Company Law were adopted during an executive meeting of the State Council. In implementing the registered capital management system, the meeting emphasized the need to adjust investment periods for existing companies, ensure shareholders fulfill their capital contribution obligations and optimize registration services. On July 1, 2024, the official document was released on the State Council website.
At the end of 2023, China’s legislature adopted an amendment to the Company Law, which introduced new regulations on the term of payment for subscribed capital, as well as requirements to publicly disclose the amount of registered capital.
The amended Company Law comes into effect on July 1, 2024, meaning any companies established after this date must comply with the new rules on subscribed capital.
In order to accommodate companies that are established before the amended Company Law comes into effect and have subscribed capital payment terms exceeding the five-year time limit, companies will be granted three years to adjust the contribution period to meet this requirement.
To provide guidance and ensure the implementation of the new rules within the deadline, on June 7, 2024, the State Council also approved the Provisions on the Registered Capital Registration Management System (the “management provisions”). The management provisions also came into force on July 1, 2024.
The final version of the management provisions differs somewhat from the previous draft version released in March (2024), having removed a number of requirements for information disclosure, as well as eligibility requirements for companies to reduce their registered capital.
Below we outline the requirements stipulated in the final version of the management provisions.
Changes to the registered capital system in the amended Company Law
Registered capital is the initial investment dedicated by shareholders to a company—either a joint venture or a wholly foreign-owned enterprise (WFOE) in the foreign investment regime. This amount must be registered with the local branch of the State Administration of Market Regulation (SAMR) when a company is incorporated. It is included in the company’s business license, Articles of Association (AoA), and the investment certificate issued to shareholders after incorporation.
Registered capital in China can be in the form of cash or in-kind contributions, such as the provision of equipment, intellectual property, or even labor. However, in-kind contributions can only account for up to 20 percent of the total registered capital amount.
Subscribed capital model
China follows a subscribed capital model, which means that the capital contributions do not need to be paid upfront. Previously, the subscribed capital could be injected under a schedule determined by the company itself. However, in the 2023 amendment to the Company Law, shareholders of a Limited Liability Company (LLC) must pay their subscribed capital in full within five years of the company’s establishment.
Moreover, for a joint-stock company that is established by initiation or private placement, the promoters are required to pay the shares subscribed by them in full.
If a joint-stock company increases its registered capital, it must register changes in registered capital after the shareholders of the company have paid in full.
Deadline for implementation of the new registered capital system
Companies established before the amended Company Law took effect on July 1, 2024, that have a subscribed capital payment term (“contribution period”) exceeding five years, will have until June 30, 2027, to make the required adjustments.
Suppose an LLC is established before July 1, 2024, but the remaining contribution period for its shareholders is less than five years from July 1, 2027. In that case, the company does not need to make any adjustments before the deadline. However, if the remaining contribution period exceeds five years, then the company must adjust it to be within five years by the end of the transition period. That is to say, the final date for LLCs established before July 1, 2024, to complete their capital payment is June 30, 2032.
Meanwhile, for joint stock companies established before the implementation of the amended Company Law, the funds for subscribed shares must be fully paid before June 30, 2027.
| Deadlines Under Adjusted Subscribed Capital Rules for Companies Established Before July 1, 2024 | ||
| Company type | Adjustment | Deadline |
| LLCs | Adjustment of contribution period to within five years | June 30, 2027 |
| Full payment of subscribed capital | June 30, 2032 | |
| Joint stock companies | Full payment of subscribed shares | June 30, 2027 |
Changing the amount of registered capital
When reducing the registered capital, the amount of deducted capital that can be remitted overseas or reinvested domestically is generally limited to the paid-in registered capital of foreign investors, excluding equity such as capital reserves, surplus reserves, undistributed profits, and so on. If the capital reduction proceeds are used to make up losses on the book or to reduce the foreign party’s contribution obligations, the amount of capital reduction proceeds shall be set at zero, unless otherwise stipulated.
Under the management provisions, if a company wishes to adjust the amount of capital subscribed and paid by shareholders, the method of capital contribution, the term of capital contribution, or the number of shares subscribed by the promoters, it can do so simply by announcing the reduction to the public through the National Enterprise Credit Information Publicity System for a period of 20 days.
The company must ensure that the public information disclosed regarding the change in registered capital is true, accurate, and complete.
If creditors raise no objections during the publicity period, the company can proceed with the change in registration of capital based on the application and commitment letter.
The company registration authority will supervise and inspect the companies’ public subscription and actual payment of subscribed capital by randomly selecting targets for inspection.
Exceptions
Some companies established before July 1, 2024, whose production and operation involves national interests or major public interest may be exempted from having to adjust the contribution period and can continue with their original payment schedule if given consent by the relevant department of the State Council. In this case, the market supervision and administration department of the State Council may agree to its capital contribution according to the original capital contribution period.
Disclosure requirements
In addition to the new time limit for payment of subscribed capital, the amended Company Law also stipulates new requirements for companies to disclose their registered capital. Specifically, companies must disclose the following information on capital registration through the National Enterprise Credit Information Disclosure System (among other information):
- The amount of capital contribution subscribed and paid by shareholders of an LLC, the method and date of capital contribution, and the number of shares subscribed by the promoters of a joint stock company; and
- Changes to the equity and share information of shareholders of LLCs and promoters of joint stock companies.
Meanwhile, under the management provisions, the company registration authority is required to make a note of certain irregularities of a company in the National Enterprise Credit Information Disclosure System.
First, the company registration authority will make special marks in the National Enterprise Credit Information Disclosure System and make a public announcement if:
- A company has its business license revoked, is ordered to close, or is deregistered;
- It is listed in the List of Abnormal Business Operations due to being uncontactable at its registered address or place of business; or
- If its contribution period or registered capital does not comply with the management provisions and cannot be adjusted.
Meanwhile, if a company fails to apply for deregistration with the company registration authority within three years from the date its business license is revoked, it is ordered to close, or it is deregistered, then the company registration authority may announce this through the National Enterprise Credit Information Publicity System for a period of at least 60 days. This requirement is also stipulated in the Company Law.
However, the management provisions also clarify that if relevant departments, creditors, or other interested parties raise objections to the company registration authority during this announcement period, the deregistration process will be terminated. If there are no objections by the end of the announcement period, the company registration authority may proceed with the deregistration and make a special notation in the National Enterprise Credit Information Publicity System.
Consequences for failing to make adjustments
If the shareholders or promoters of a company fail to pay the subscribed capital or share capital in accordance with these regulations, or the company fails to publicize relevant information in accordance with the law, then it will be punished in accordance with the relevant provisions of the Company Law and the Interim Regulations on Enterprise Information Disclosure.
Changes from the draft provisions and further steps
One of the main changes from the draft provisions is the removal of certain eligibility requirements for companies to reduce their registered capital. Previously, the draft provisions required companies to meet specific debt criteria to apply for a reduction of their registered capital through the simplified system of announcing it on the National Enterprise Credit Information Publicity System for 20 days. Now, these criteria have been removed, allowing companies to apply to change (not just reduce) their registered capital through this simplified disclosure system.
In addition, the draft provisions also required the company registration authority to assess the authenticity of the registered capital of companies established before July 1, 2024, with a contribution period exceeding 30 years or total subscribed contributions exceeding RMB 10 billion (US$1.4 billion). However, this provision has now been removed.
Nevertheless, the final version of the provisions stipulates that the company registration authority must “strengthen guidance” on the adjustment of capital contribution periods and registered capital for companies, which includes formulating specific operational guidelines. The State Administration for Market Regulation (SAMR) is also tasked with formulating specific implementation measures for the registration management of registered capital, in line with the management provisions.
This means that additional regulations and measures governing companies’ registered capital may be released to provide guidance on the changes introduced by the amended Company Law, leading up to the 2027 deadline.
This article was first published on February 8, 2024, and last updated on July 8, 2024, to reflect the latest changes.
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