The amendments to the Company Law, which entered into force on 1st March 2014, contain issues of interest to foreign investors, such as the abolition of the minimum registered capital, of the deadlines for its payment and of the cash contribution requirements. As officially stated by Prime Minister Li Keqiang, the purpose of this reform was to make the corporate legislation more efficient.
At the time of establishment of the Shanghai Free Trade Zone, the Chinese Government had clearly stated that it would be a kind of testing ground for the simplification and liberalization of investments in China, with the aim of extending throughout the country what may be considered sustainable. Many of the implemented reforms were in fact inspired by the Shanghai Free Trade Zone; this kind of procedure will be probably followed also in the future.
Minimum registered Capital
The first main amendment concerns the abolition of the minimum registered capital; the previous legislation required a minimum registered capital of RMB 30,000 for a limited liability company, RMB 100,000 for a sole-shareholder limited liability company and RMB 5,000,000 for a joint stock company. The amendments cancel those requirements, even though the whole investment must be adequate according to the activities done, and the amount of capital stock must be expressly stated in the Articles of Association. The limit which may be expected in a certain fields, still remain valid.
Payment of registered Capital
Another important innovation concerns the abolition of the deadline for the payment of the registered capital; pursuant to the previous legislation the members were required to pay their contributions within two years from the date of issuance of the business licence, under penalty of suspension of their commercial activities if they did not comply. Pursuant to the new company law, the members may now freely decide when to make the payment of the due contributions. In any case, the only penalty provided is that during the company liquidation, if the company’s debts are higher than its assets, members may be required to make the payments still due.
Cash contributions
Another significant aspect concerns the cancellation of the requirement of minimum cash contributions by company members. The Company Law originally provided that at least 30% of the registered capital had to be cash. The cancellation of that limit now allows considerable decision-making autonomy to company members who may determinate to what extent the company capital should be cash and to what extent it should consist of other assets, such as intellectual property rights, property rights etc.
Capital Registration System Reform Plan
On 7th February 2014, the Registered Capital Registration System Reform Plan was finally approved with the objective of facilitating the entry of domestic and foreign companies in the Chinese market. The annual inspections performed by the Chinese authorities before the reform to check the company documents, have now been replaced by annual reports prepared by the same companies. These reports must include specific information, such as registration status, amount of paid-up capital etc., which will be available not only to competent authorities, but also to the public, in order to allow transparency and full disclosure of company information.
(By Shanghai Office – Luigi Zunarelli e Sabrina Gao – tel. +86 21 51501952)
