China to Lower Incorporation Requirements
China is to further lower the requirements for registering new businesses in China, the State Council, China’s cabinet, recently revealed their scheme for the reform in business registration. The scheme is a vigorous move in executing the objectives determined in the Third Plenum last year to establish an open and competitive market. Decisions made in the Third Plenum after the enthronement of a new leadership in China usually serves as an indication of how the country will be led for the next decade.
China amended its Company Law at the end of 2013. The new law will remove the registered capital requirements for company establishment, replace the paid-up capital registration regime with a subscribed capital registration regime, and will remove the minimum cash contribution requirement. The new Company Law will come into force on March 1, 2014.
Registering under the subscribed capital method allows companies to complete the business registration process without having to inject any initial capital contributions upon startup. Companies will also be able to decide on the amount, method, and deadline for capital contributions at their own discretion.
The scheme is to further ease the rules that govern business entities in China. It replaces the annual inspection at the Administration of Industry and Commerce (AIC) with the annual reporting regime. Specifically, the tedious annual inspection procedure will be substituted by an electronic credit information system, which will be used by enterprises for presenting their annual reports online for public inquiry. The AIC will only conduct random spot checks on the displayed information. The current annual inspection process will officially be scrapped on March 1, 2014, according to a notice released by the State AIC this month.
However, the scheme only sets the guiding principles that must be followed for the reform process. The specific implementation regulations, which will outline the legal responsibilities of both the government and business entities, will be set by the local governments at the provincial or city level.
Some provinces and cities have already disseminated similar regulations to ease the business registration procedures for newly established enterprises. For example, Tianjin’s AIC allows investment projects that require licensing and preliminary approvals, such as food manufacturing and medicine industries, to apply for “preparatory stage business licenses.” To start a catering company, for instance, an investor can apply for a preparatory stage business license, with which the “company” can conduct preparatory activities, such as purchasing equipment and recruiting staff, but cannot provide catering services.
While most industries will be able to avail the new terms under the scheme, the following industries have not been allowed to complete the business registration process solely base on subscribed capital, but instead must fulfill the paid-in capital requirements:
- Company established through public offering
- Commercial bank
- Foreign invested bank
- Financial asset management company
- Trust company
- Finance company
- Financing leasing company
- Automotive finance company
- Consumer finance company
- Money broking company
- Rural bank
- Loan company
- Rural credit cooperative association
- Rural capital support community
- Security company
- Futures company
- Fund management company
- Insurance company
- Insurance specialized agent or insurance broker
- Foreign invested insurance company
- Direct selling enterprise
- Foreign labor cooperation enterprise
- Financial bonding company
- Labor dispatching enterprise
- Pawn shop
- Insurance asset management company
- Small-loan company
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.