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China Amended its Company Law

01/01/2014

On 28 December 2013, the Standing Committee of the People's Congress adopted a resolution to approve the Amendment to the PRC Company Law (“Amendment”). The Amendment will become effective on 1 March 2014. It refers to changes of the capital contribution of companies in China with the aim to ease the financial burdens on investors for establishing companies in China. We highlight below the main changes under the Amendment.

  1. According to the current PRC Company Law, the minimum registered capital of a limited liability company shall be RMB 30,000 or RMB 100,000 (in case the company is wholly owned by one shareholder). For a company limited by shares, the minimum registered capital shall be RMB 5 million. According to the Amendment, these requirements on minimum registered capital will be abolished, unless the law, administrative regulations or decisions of the State Council provide otherwise for companies in certain industrial sectors. Thus, theoretically speaking, investors can now establish a company with a registered capital of one RMB.

    Despite the above, for foreign invested enterprises (“FIEs”), it remains to be seen whether in practice the competent approval and examination authority and the competent Administration for Industry and Commerce (“AIC”) will nevertheless require the registered capital of an FIE to be in accordance with its business scale.
  2. Changes are also made regarding the term of capital contributions. Prior to the Amendment, the investor of a company had to contribute at least 20% (15% for FIEs) of the registered capital within 3 months upon the issuance of the first Business License of the company and the remaining amount had to be paid in within 2 years. According to the Amendment, such deadlines for capital contribution no longer exist, unless the law, administrative regulations or decisions of the State Council provide otherwise for certain companies. According to the press report on an interview with an official of the State Administration for Industry and Commerce (the “SAIC”), the shareholders may have their own discretions to stipulate the contribution term of the registered capital in the Articles of Association of the company.

    For FIEs, their statutory capital contribution terms are currently stipulated by the Implementing Opinions on Several issues regarding Application of Laws on Approval, Registration and Administration of Foreign Invested Enterprises (the “Implementing Opinions”), which were issued by the SAIC, the Ministry of Commerce and other two ministerial departments in accordance with the previous amendments to the PRC Company Law in the year 2005. The Implementing Opinions are not regarded as law, administrative regulations or decisions of the State Council and, therefore, theoretically speaking the Amendment shall also apply to FIEs, i.e. in the future there should also be no statutory capital contribution term for FIEs. However, in practice it is advisable to check this issue with the competent examination and approval authority and the competent AIC prior to the establishment of an FIE.
  3. In addition, according to the Amendment, the amount of the paid-in registered capital is no longer subject to registration with the competent AIC and it also will not be a must to engage a certified public accountant to issue a capital verification report for the capital contribution. Furthermore, in the past, the amount of cash contribution shall not be less than 30% of the total amount of registered capital of a company. Such requirement on minimum cash contribution has also been abolished by the Amendment.

The Amendment brings significant changes to the current regime of capital contribution under the PRC Company Law and lowers the threshold for company establishment. We expect that, due to these changes to the PRC Company Law, other pertinent regulations, such as the Regulations on Administration of Company Registration and the Regulations of Administration of Registration of Registered Capital of Companies, will also be amended soon.

Source
China Insight - Corporate
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Authors

Picture of Ulrike Glueck
Dr. Ulrike Glueck
Managing Partner
Shanghai
Kevin Wang
Kevin Wang, LL.M.