On December 28, 2013, the Standing Committee of the 12th National People’s Congress of the People’s Republic of China (the “PRC”) adopted Amendments to the PRC Company Law (the “Amendments”). The Amended Company Law will become effective on March 1, 2014. The Amendments focus on registered capital requirements.
The Company Law’s minimum registered capital requirements to establish a company will be lifted.1 At present, the mandatory minimum registered capital is set at RMB 30,000 for a limited liability company, RMB 100,000 for a one-person limited liability company and RMB 5,000,000 for a company limited by shares. Upon the effectiveness of the Amendments, it will be possible to establish a company with nominal capital.
At present, shareholders are allowed to make capital contributions in various forms, including cash, real estate, machinery, and intellectual property rights, so long as cash contributions constitute at least 30% of registered capital. Upon the effectiveness of the Amendments, it will be legally permissible to establish a company without a cash contribution.
Under the current regime, the full contribution of registered capital is required to be completed within mandatory time periods — two years from the establishment date for a normal limited liability company, and five years from the establishment date for a limited liability investment company). When the Amendments become effective, the shareholders will have the discretion to determine the schedule for making capital contributions.2 Similarly, the current requirements regarding the minimum percentage of the initial capital contribution (i.e., the greater of 20% and the mandatory minimum registered capital amount) will be lifted.
A limited liability company will no longer be required to disclose the contributed capital of each shareholder and the paid-in registered capital of the company as part of its corporate registration. In addition, a capital verification report will no longer be required for a corporate registration.
Foreign invested enterprises are subject to the laws and regulations governing incorporation and operation of foreign invested enterprises in addition to the PRC Company Law. It is generally expected that the Chinese government will soon issue guidelines to apply the Amendments to foreign invested enterprises.
1 However, exceptions are made where other PRC laws, administrative regulations and State Council decisions stipulate otherwise regarding minimum registered capital or paid-in registered capital.
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This article was originally published by Bingham McCutchen LLP.