Before PRC Company Law took effect on January 1, 2006, laws or regulations was far from clear as to how much the minimal capital contribution of a foreign invested enterprise(“FIE”) should be. In practice, the authority in charge of establishment of a FIE in China normally required the minimal registered capital of a FIE should be around 100,000 USD according to a FIE’s business scope.
PRC Company Law clarified this issue and stipulates that if a foreign investor intends to set up a wholly-foreign-owned enterprise(“WFOE”) with a sole foreign shareholder, then the minimal registered capital should be 100,000 RMB , and, if several foreign investors intend to set up a WFOE with several foreign shareholders, then the then the minimal registered capital should be around 30,000 RMB.
This is, however, technically legal requirements. We have to point out that in practice, we have very few precedents where local authority in charge of examining and approving establishment of a FIE approved the application for formation of a FIE with the registered capital of only 100,000 RMB or 30,000 RMB. In fact, the local authority often request a foreign investors contributing more money to the registered capital, otherwise they would take very stricter attitude to the application for establishment of a FIE. The reason why the local authorities do so is that local authorities are tasked with attracting more foreign investment into China. The more a foreign investor contributes to the registered capital, the better their performance on such task will be, and therefore their year-end bonus will be more decent.
We have to follow the local authority’s request even if they would undercut the application of PRC Company Law. A foreign investor may argue with them about the minimal requirements by Company Law, but the local authority will delay or even reject your application, which you are unable to afford.
Thus, when we advise our client on the issue of minimal registered capital, we normally suggest our client preparing more money, especially in some business sectors which require a lot of money such as trade company. In Shanghai, local authority requires the registered capital of a foreign invested trade company should be at least 500,000 RMB.
By Adam Li