On January 21, 2014, “mondaq” posted on its website a very informative article about the amendments to company registration laws that are just around the corner here in China. This article entitled “China: The interpretation of recent amendments to the Company Law of the Peoples Republic of China”, by Mr. Jiang Rongqing, contains a very useful reference chart to aid you in your understanding of the new amendments. This article is reprinted in part below. Among others, Mr. Rongqing makes the following comments about the registration of limited liability companies:
“On December 28th, 2013, the Standing Committee of the National People’s Congress approved amendments to the company law, which will come into force on March 1st, 2014. The major change is to ease company registration, which would stimulate more investments and shape a better environment for deepening market reform.
The simplification of registration and cancelation of registration capital thresholds would probably trigger a steep rise in quantity of small and medium-sized enterprises. However, with respect to the quality of those increased companies, and to what extent they can function adequately and satisfactorily, there still leaves a doubt.
The detailed revisions with textual analysis, as my interpretation, are as follows:
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Amended Text |
Original Text |
Interpretation |
| 1. Delete “actually paid capital” in Article 7, paragraph 2. |
Article 7 For a lawfully established company, the company registration authority shall issue a company business license to the company. The date of issuance of the company business license shall be the date of establishment of the company.
The company business license shall state the name, domicile, registered capital, If any of the items as stated in the business license is changed, the company shall modify the registration and the company registration authority shall replace its old business license by a new one. |
Actually paid capital is no longer a matter for company registration record.
However, it should be noted that shareholders in a limited liability company shall bear the limited liabilities in accordance with the total amount of their subscribed capital contributions. Thus, to some extent, the size of the registered capital would still reflect a company’s decided financial strength and its capacity to bear civil liabilities. The more registered capital, the more liability each shareholder will bear within the scope of their subscribed capital. Accordingly, for shareholders, it is unwise to make subscriptions willfully solely upon the new amended system. |
| 2. Article 23(2) has been amended to read “(2) capital contributions should comply with the regulated all shareholders’ subscribed capital contributions by the articles of association”. |
Article 23 The establishment of a limited liability company shall meet the following conditions:
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No statutory minimum amount of the registered capital will be set for limited liability company.
That is to say, one Yuan is enough for registering a limited liability company. |
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3. Article 26 has been amended to read “The registered capital of a limited liability company shall be the total amount of capital contributions subscribed to by all the shareholders registered in the company registration authority.”
“If any law or administrative regulation prescribes a relatively higher minimum amount of registered capital of a limited liability company, the provisions of that law or administrative regulation shall be followed”. |
Article 26 The registered capital of a limited liability company shall be the total amount of capital contributions subscribed to by all the shareholders registered in the company registration authority. The amount of the initial capital contributions made by all shareholders shall not be less than 20% of the registered capital, nor less than the statutory minimum amount of registered capital, the margin shall be paid off by the shareholders within 2 years from the day when the company is established; for an investment company, it may be paid off within 5 years.
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The amended paragraph 2 mainly refers to the provisions on requirements of minimum registered capital in Securities Law of the People’s Republic of China, Law of the People’s Republic of China on Commercial Banks, Regulations of the People’s Republic of China on Managements of International Freight Forwarders etc. |
| 4. Delete Article 27, paragraph 3. |
Article 27 A shareholder may make capital contributions in cash, in kind, or intellectual property right, land use right, or other non-monetary properties that may be assessed on the basis of currency and may be transferred according to the law, excluding the properties that shall not be treated as capital contributions under any law or administrative regulation. The value of the non-monetary properties as capital contributions shall be assessed and verified, which shall not be over-valued or under-valued. If any law or administrative regulations provides for the value assessment, such law or administrative regulation shall be followed.
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Since the amendments remove the requirements on minimum registered capital the 30% monetary contribution turns out to be meaningless.
For people who have technical background, they don’t have to be limited to the 3% monetary contribution requirement as a support for their technical contribution. Now, after the amendments, technical or other appreciable in-kind contributions can be “paid” in full on establishing a company. |
| 5. Delete Article 29. |
Article 29 The capital contributions made by the shareholders shall be verified by a lawfully established capital verification institution and the institute shall issue a certification to prove the contribution. |
The requirements for capital contributions verification has completely become a history and fees for establishing a company have been largely reduced (almost no other fees except registration fee are required). |
| 6. Change Article 30 into Article 29 and Article 30 has been amended to read “After the initial capital contributions made by the shareholders in compliance with the articles of association, the representative designated by all the shareholders or the agent entrusted by all the shareholders shall apply for establishment registration by submitting a company registration application, bylaw, capital verification and other documents to the company registration authority.” |
Article 30 After the initial capital contributions made by the shareholders have been verified by a lawfully established capital verification institution, the representative designated by all the shareholders or the agent entrusted by all the shareholders shall apply for establishment registration by submitting a company registration application, bylaw, capital verification and other documents to the company registration authority. |
Shareholders shall make registration upon their subscribed capital contributions and subscribing time. After all the capital contributions have been paid off in accordance with the articles of association, all the shareholders may designate a representative or an agent to apply for establishment registration without capital verification.
Procedures are simpler for paying registered capital since there would be no need to open an account or do the verification. |
The Chinese government has been encouraging the development of new businesses within China for some time now as it tries to move from an export driven economy to a domestic retail economy. To this end, it is now taking actions to make it easy to register new companies, a move that should help to bring the results the government is seeking. However, as stated by Mr. Rongqing above, it remains to see what the quality of the new companies the new amendments beget is. We should know more beginning on March 1, 2014.
To read the entire article, please go to:
http://www.mondaq.com/x/287106/Corporate+Commercial+Law/The+interpretation+of+recent+amendments
Hawkeye in China
Lex Smith