UPDATE (June 12, 2024): Recently, the State Council’s executive meeting on June 7, 2024, marked an important milestone with the adoption of the draft Provisions on the Registered Capital Registration Management System under China’s Company Law. This step underscores efforts to streamline registered capital management, adjust investment timelines for existing companies, and enhance registration services. While the official document is forthcoming, we’re closely monitoring updates.

Changes to Company Law: By the end of 2023, China revised its Company Law, introducing new rules on the timing of subscribed capital payments and requirements for disclosing registered capital amounts.

Effective Date: Starting July 1, 2024, companies established after this date must adhere to the updated regulations regarding subscribed capital.

Transition Period: For companies established before the new law takes effect, there’s a transition period allowing adjustments to subscribed capital payment schedules that exceed the new five-year limit. This transitional phase aims to help companies gradually align with the updated requirements.

Provisions for Guidance: To support this transition, the State Council has released a draft of the Provisions on the Registered Capital Registration Management System for public feedback until March 5, 2024. If approved, these provisions will also take effect on July 1, 2024, offering clear guidelines for compliance.

Here are the key summaries:

1. Registered Capital Changes:

– For Limited Liability Companies (LLCs) established after the amended Company Law, shareholders must pay their subscribed capital in full within 5 years.

– For joint-stock companies established by initiation or private placement, promoters must pay the shares subscribed by them in full.

– Companies must register changes in registered capital after shareholders have paid in full.

2. Transition Period:

– For companies established before the amended law, there is a transition period from July 1, 2024 to June 30, 2027 to adjust to the new 5-year capital contribution rule.

– LLCs established before July 1, 2024 must complete capital contributions by June 30, 2032 if the original contribution period exceeded 5 years.

– Joint-stock companies established before the amended law must fully pay subscribed shares within the 3-year transition period.

3. Reducing Registered Capital:

– During the transition period, companies can reduce registered capital through a simpler process if they meet certain conditions.

– Otherwise, the usual process for reducing registered capital applies.

4. Anomalies in Subscribed Capital:

– For companies with contribution periods over 30 years or over RMB 10 billion, authorities may assess the authenticity and require adjustments.

5. Exceptions:

– Companies involved in strategic/critical fields may be exempted from adjusting contribution periods if approved by the State Council.

6. Disclosure Requirements:

– Companies must disclose shareholder capital contribution details and changes through the national credit information system.

7. Consequences:

• Companies that fail to adjust contribution periods during the transition period may face penalties like a public credit mark.

Our suggestions:

• Evaluate your company’s current capital contribution schedules to ensure they comply with the new 5-year requirement under the revised Company Law.
• Utilize the transition period effectively to adjust any subscribed capital payment schedules that exceed the mandated timeframe.
• Stay informed about updates and guidelines from the State Council regarding registered capital management to maintain proactive compliance.