China Amends Its Company Law
With the aim of stimulating social investment and entrepreneurship, China’s National People’s Congress adopted the “Amendment to the Company Law of People’s Republic of China” (hereinafter referred to as ‘Amendment’) on December 28, 2013, which has lowered the company establishment requirements and reformed the company capital registration regime. Detailed information can be found below.
The Amendment mainly introduces the following three changes:
- Removing the registered capital requirements for company establishment.
- Replacing the paid-up capital registration system with a subscribed capital registration system; and
- Removing the minimum cash requirement.
The Amendment is scheduled to take effect on March 1, 2014.
Removing the registered capital requirements for company establishment
The minimum registration capital of RMB30, 000 for limited liability companies will be cancelled, as well as the RMB100, 000 minimum for single shareholder companies and the RMB5 million minimum for joint stock companies.
Replacing the paid-up capital registration system with a subscribed capital registration system
This change means shareholders of the company will be able to decide on the amount, method, and deadline for the subscription of contributions at their discretion. However, they will still be liable for the authenticity and legality of the capital contribution and be held accountable to the enterprise within the limits of their respective subscribed capital or shares. Moreover, the actual capital contributions of the company will no longer be a registration item for incorporation.
Removing the minimum cash requirement
Under the current company law, at least 30 percent of the registered capital contribution is required to be made in cash. This requirement has been abolished by the Amendment.
Additionally, the Amendment has simplified registration procedures by canceling the requirement of a capital contribution verification report.
According to Zhang Mao, head of China’s State Administration of Industry and Commerce, foreign-invested companies in China will also see an easing of company registration requirements based on the principle of national treatment.
“Based on the national treatment principle, foreign companies are entitled to the same policies as their Chinese counterparts enjoy, meaning, when the Chinese government eases the setting-up requirements for Chinese companies, foreign investors should receive the same treatment,” said Zhang at a press conference held in November.
Dezan Shira & Associates is a specialist foreign direct investment practice, providing corporate establishment, business advisory, tax advisory and compliance, accounting, payroll, due diligence and financial review services to multinationals investing in emerging Asia. Since its establishment in 1992, the firm has grown into one of Asia’s most versatile full-service consultancies with operational offices across China, Hong Kong, India, Singapore and Vietnam as well as liaison offices in Italy and the United States.