Registered capital paid up in 5 years, Effective from July 2024
The Standing Committee of the 14th National People’s Congress (NPC) – Seventh Session voted on 29th December 2023 to approve the newly revised Company Law of the People’s Republic of China which will come into force on 1st July 2024.
The revised Company Law makes it clear that in order to regulate the organization and conduct of companies, protect the lawful rights and interests of companies, shareholders, employees and creditors, improve the modern enterprise system with Chinese characteristics, promote the spirit of entrepreneurship, safeguard the social and economic order, and promote the development of the socialist market economy, the Company Law is enacted in accordance with the Constitution.
In this adjustment, the focus of attention is precisely on the provisions of the registered capital must be paid within five years.
Previously, there is no limit on the amount of registered capital and the period of paid-in capital under the registration system. However, in practice, many companies survive by “muddling through” with high registered capital but low or even zero injection, harming the interests of stakeholders and reducing the trust in the registered capital.
For this phenomenon, the adjusted company law has certain constraints: the shareholders of the company need to re-examine the registered capital of the company, and if it cannot be paid-in within five years, the registered capital should be reduced in a timely manner through the capital reduction procedure, in order to prevent aggravation of unnecessary burden on the company’s capital and loss of shareholders’ rights. According to the articles of the new Company Law:
Article 47 The registered capital of a limited liability company shall be the amount of capital contributions made by all shareholders as registered with the company’s registration authority. The capital contributions made by all shareholders shall be paid in full by the shareholders within five years from the date of establishment of the company in accordance with the provisions of the articles of association.
Article 51 Upon the establishment of a limited liability company, the board of directors shall verify the capital contributions of the shareholders, and if it finds that a shareholder has not paid the capital contributions stipulated in the articles of association of the company in full and on time, the company shall issue a written reminder to the shareholder to call for the payment of the capital contributions.
If the failure to fulfill the obligations stipulated in the preceding paragraph in a timely manner causes losses to the company, the responsible director shall be held liable for compensation.
Article 52 If a shareholder fails to pay the capital contribution in accordance with the date specified in the Articles of Association, and the Company issues a written reminder to call for the payment of the capital contribution in accordance with the provisions of Paragraph 1 of the preceding Article, the Company may specify a grace period for the payment of the capital contribution; such grace period shall not be less than sixty days from the date of the Company’s issuance of the reminder. If the grace period expires and the shareholder still fails to fulfill the obligation to make the capital contribution, the company may, by resolution of the board of directors, issue a notice of forfeiture of rights to the shareholder, and the notice shall be issued in written form. From the date of issuance of the notice, the shareholder loses his/her shareholding in the unpaid capital.
In addition, the end of the articles also points out that: if a company that has been registered and established prior to the implementation of the revised company law has a capital contribution period that exceeds the period stipulated in this law, the company shall gradually adjust its capital contribution period to within the period stipulated in this law, except as otherwise provided by the laws, administrative regulations or the State Council; if the capital contribution period or the amount of the capital contribution is obviously abnormal, the company’s registration authority may, in accordance with the law, require it to adjust the capital contribution period in a timely manner.
As a next step, the State Council will also formulate regulations to guide the current companies to reasonably adjust the period of capital contribution and the amount of capital contribution, and to implement measures in a categorized manner, so as to promote the relevant work in a prudent and steady manner. Comprehensive study and judgment of the registered capital contribution period, the amount of capital contribution is obviously abnormal stock of companies, in accordance with the law to urge the company to honestly fulfill the obligation of capital contribution.
In the meantime, companies are advised to prioritize self-checks and prepared in advance so that to actively cooperate and mitigate additional losses once the policy is concretely implemented.
Please also stay tuned for other relevant news about the policy trends. Feel free to contact us if you have any concerns.
Company Law of the People’s Republic of China (2023 Revision)