|
Background
Until now, Chinese Company Law specified clear minimum
registered capital requirements, including:
- CNY 30,000 for limited
liability companies with multiple shareholders;
- CNY 100,000 for
single-shareholder limited liability companies; and
- CNY 5,000,000 for
companies limited by shares.
In addition, the registration process required approval
from local authorities based on industry focus, project, scale and
location. Investors had then to determine the amount of registered
capital in advance, confirm it with local authorities and have it
indicated on their business license. Every installment or further
additional contribution had to be updated and recorded on the business license.
When setting up a new company, investors would have to
contribute 20% of the registered capital within three months from
obtaining the business license, and the full amount within two years.
Requirements would vary across the country, for example, in southern
cities, companies were expected to contribute 15% within three months and
the remainder within one year. With each contribution, a local Certified
Public Accountancy (CPA) firm had to produce a capital verification
report.
Streamlined
business law
China’s Company Law has been amended so that:
1. Registered capital minimums
removed
The amendments mean that companies with one shareholder
are no longer required to register capital of CNY 100,000, while
companies with more than one shareholder are not required to register
capital worth CNY 30,000.
In practice, local authorities will probably have
discretion to require appropriate investments from foreign companies or
individuals if the proposed amount is deemed unrealistic to make the
project commercially viable. Moreover, several regulated industries will
retain high registered capital requirements, for example banking,
insurance, international freight forwarding and leasing.
2. Capital
contribution deadlines removed
Under the amendments, deadlines for capital contributions
no longer apply. The State Administration for Industry and Commerce
(SAIC), which grants business licenses, now allows shareholders to decide
their own contributions schedule for registered capital.
This will allow foreign direct investors to be more
flexible with their Chinese subsidiaries while saving valuable time and
effort related to administrative capitalisation schedules.
3. No capital verification reports
and AIC updates
The amended law eliminates the requirements to update the
Administration of Industry and Commerce (AIC) on capital contributions
and provide them with a capital verification report certified by a local
CPA firms. Also removed is the minimum cash requirement, which was of at
least 30% of the total investment.
Although the AIC no longer requires a capital verification
report, this document will still need to be provided to other authorities
and to the bank during post-registration procedures.
Local AIC at the municipal, provincial and city level will
gradually release their local implementation rules to carry out the
reform.
Changes for foreign investors
The reforms to Company Law also abolished administrative
regulations pertaining to capital contribution requirements for
Sino-foreign joint ventures, and revised eight regulations regarding
capital contributions upon incorporation.
The changes will apply to all companies established in
China as of 1 March 2014, including domestic companies and
foreign-invested companies (FIEs).
However, there is uncertainty as some FIEs are established
under separate laws that still require the payment of registered capital
within certain timeframes and capital verification. The amounts and form
of registered capital are also subject to approval. It is not yet clear
when and how the Company Law amendments will apply to FIEs.
However, China’s Ministry of Commerce and the SAIC are
currently reviewing foreign investment laws and have said that the FIE laws
will be revised.
Once FIE laws are revised, it is expected that FIEs will
benefit from the new Company Law amendments and foreign investors are
very likely to appreciate the timing and flexibility over capital
contributions.
Vistra China will continue to monitor and provide updates
on new developments as they occur.
|
No comments:
Post a Comment
Note: Only a member of this blog may post a comment.