3+5 | Exposure draft on ” Transition Period ” for Registered Capital

The new draft company law of the People’s Republic of China (PRC) introduces significant changes related to capital contributions and transition periods. The draft amendment proposes an accelerated capital contribution obligation, i.e. the shareholders of a company are required to complete the full capital contribution within five years. You may refer to our previous article: www.serviceonnewgrounds.com

On February 6, 2024, the State Administration for Market Regulation published the Provisions of the State Council on Implementing the Registered Capital Registration Management System of the Company Law of the People’s Republic of China (Exposure Draft) and publicly solicited opinions from the public.

The Exposure Draft stipulates the implementation of the “3+5” adjustment arrangement for the current of companies, adjustments to deal with unusual companies in terms of the duration and amount of capital contribution, public information requirements, and standardization of intermediaries and other aspects of the registered capital of the company’s registration management.

• Clarify a three-year transition period for existing companies.

It is clear that a 3-year transition period is reserved for the existing company to apply the relevant provisions of the Company Law on the capital contribution period, i.e., the existing limited liability company whose shareholders have contributed for more than 5 years shall adjust the remaining capital contribution period to 5 years within the transition period of 3 years after the implementation of the Company Law, and the joint-stock company shall pay the full amount of the subscription for the shares within the transition period of 3 years.

• Clarify the rules applicable to the capital contribution period for newly established companies.

In accordance with the requirements of the Company Law, a limited liability company shall, following its articles of association, pay its registered capital in full within five years from the date of its establishment; a joint-stock company shall pay the full amount of the subscribed shares before its establishment is registered.

At the same time, the applicable rules of the company’s capital increase have been stipulated:

• limited liability companies should be fully paid within 5 years of the newly subscribed registered capital.
• joint stock limited company should be registered as a change of registered capital after the shareholders of the company have paid up their shares in full.

A limited liability company, a joint-stock limited company established by initiation or directed solicitation need not submit a certificate of capital verification from a capital verification organization when applying for registration of the company.

You may refer to the below picture for easy reference.

• Clarify the manner of determining and disposing of obvious anomalies in the period of capital contribution and the amount of capital contribution.

1. For companies with a capital contribution period of more than 30 years and a capital contribution of more than 1 billion yuan, a comprehensive study will be conducted to determine whether it is an abnormal situation, taking into account the characteristics of its industry development and other circumstances;
2. The company registration authority may organize professional institutions to carry out an assessment, or together with relevant departments to carry out comprehensive study and judgment;
3. With the consent of the provincial market supervision department, the company registration authority shall require it to adjust the period of capital contribution and the amount of capital contribution within six months;
4. If the registered capital of a limited liability company established is obviously too high, the registration authority may refuse to register it in accordance with the law.

• Clarify the specific requirements for information disclosure.

The company shall, within 20 working days from the date of formation of the information through the national enterprise credit information disclosure system, make public the amount of shareholders’ contributions and paid-in capital, the mode of capital contribution, the date of capital contribution, the number of shares subscribed by the promoters, as well as changes in the shareholdings and shares of the company’s shareholders or promoters to the public.

At the same time, if a company fails to adjust its capital contribution period and amount in accordance with the provisions of Articles 6 and 7, the company registration authority shall specially mark it on the National Enterprise Credit Information Publication System and publicize it to the society, so as to strengthen social supervision.

Our Comments:

Although the official company law has not yet been formally promulgated, the exposure draft conveys a portion of the trend and intention, which can give the vast majority of enterprises an advance mental preparation. Some enterprises may start to prepare for the next step.

For more updates, we still need to pay attention to the latest news released by the state. Please keep following our sharing, and feel free to contact us if you have any questions.