Publication
China issues implementation rules on capitalisation requirements under the New Company Law
China’s new Company Law (the New Company Law) came into effect on 1 July 2024 (the Effective Date).
China | Publication | July 2024
China’s new Company Law (the New Company Law) came into effect on 1 July 2024 (the Effective Date). In our previous article, China releases its newly revised Company Law, we summarised some key changes under the New Company Law and the legal implications for companies (including foreign-invested entities) incorporated in China.
Amongst these key changes, shareholders of a limited liability company are now required under the New Company Law to make their contribution to the subscribed registered capital in full within five years of the company’s incorporation. This is a significant change bearing in mind that under the previous Company Law, shareholders of non-regulated companies enjoyed much more flexibility to determine the capital contribution timetable, which could even be set as long as the entire business term (e.g. 30 years) of the company. The market was therefore keen to understand how this new requirement would be implemented.
On the Effective Date, China’s State Council issued the Provisions on the Implementation of the Registered Capital Management System under the Company Law of the People’s Republic of China (in Chinese 国务院关于实施《中华人民共和国公司法》注册资本登记管理制度的规定) (Registered Capital Rules) which provide some clarity on how the capitalisation requirements under the New Company Law are to be implemented. The Registered Capital Rules also took effect on the Effective Date.
In this article, we set out a summary of the major implementation provisions contained in the Registered Capital Rules and highlight certain points of note.1
1. A three-year transition period to adjust
2. Exceptions to the general rules outlined under item 1 above
The Registered Capital Rules allow certain exceptions to the general rules as outlined under item 1 above, in the following circumstances:
3. Re-emphasis of disclosure requirements
The Registered Capital Rules provide that in case of any change to the shareholder’s subscribed or actual capital contribution amount, method or timetable, the company shall make a disclosure within 20 working days after the occurrence of such change through the National Enterprise Credit Information Publicity System and shall ensure the truthfulness, accuracy and completeness of the information so disclosed.
As is commonly the case for legislation coming into force in China, how the New Company Law and the Registered Capital Rules will be implemented in practice remains to be seen.
We set out below a few points to note:
Given such uncertainties, if a company is currently involved in a transaction or considering a corporate change other than to the capital contribution timetable, it would be prudent to pre-consult with the local AMR and clarify whether adjustment to the capital contribution timetable will be triggered by such transaction or corporate change.
We expect that the central AMR will give more guidance to local AMRs when issues emerge and the practices in this regard will become more aligned gradually but practical uncertainties and inconsistencies may exist for some time.
Publication
China’s new Company Law (the New Company Law) came into effect on 1 July 2024 (the Effective Date).
Publication
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