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(Mar 12, 2014) On December 28, 2013, the Sixth Session of the 12th Standing Committee of the National People's Congress of China made a decision to revise the Company Law of the People's Republic of China. The revised law came into force on March 1, 2014. (Decision of the Standing Committee of the National People's Congress to Revise the "Law of the People's Republic of China on Protecting the Marine Environment" and Six Other Laws [hereinafter the Decision] [in Chinese] (Dec. 28, 2013), XINHUANET; Company Law of the People's Republic of China [hereinafter the Company Law] [in Chinese] (Oct. 27, 2005), Central People's Government of the PRC website; Company Law of the People's Republic of China (revised in 2005) (Oct. 27, 2005) [English translation of the Law], State Administration for Industry & Commerce of the People's Republic of China website.)

The revision was initiated by the State Council in March 2013, as part of the effort to reform the existing business registration system. (On Transformation of the Functions of State Council Agencies, item 6, in PLAN ON RESTRUCTURING AND TRANSFORMING THE FUNCTIONS OF THE STATE COUNCIL [in Chinese] (Mar. 15, 2013), Central People's Government of the PRC website.) Under the revised Company Law, the minimum amount of registered capital is abolished, and sponsor shareholders of a company are allowed to freely determine a payment schedule of capital contributions in the company's articles of association. (Decision, supra.)

The Company Law regulates companies with limited liability (comparable to the limited liability companies in the United States) and companies limited by shares (comparable to corporations in the United States). (Company Law, art. 2.) Since 2001, the Company Law has maintained a registered capital system that specified the minimum amount of registered capital, stated the permitted forms of capital contributions, and required that the capital be verified. (Id. arts. 26, 27, 29 & 81.)

The revision of the Law abolishes the registered capital system. Specific changes made to the Law include:

• abolition of the requirement of minimum registered capital to start up a company. Under the unrevised Law, the minimum registered capital was RMB5 million (about US$800,000) for a company limited by shares, and RMB30,000 (about US$5,000) for a company with limited liability. (Company Law, arts. 26 & 81.) These requirements are abolished by the revision. Unless otherwise provided by law, regulations, or State Council decisions, the company's articles of association may determine the amount of registered capital. (Decision, art. 7 ¶¶ 2, 3, 9 & 10.)

• substitution of subscribed capital for paid-in capital as a prerequisite for incorporation registration. Under the unrevised Law, a minimum initial amount of subscribed registered capital had to be paid in and verified upon the formation of a company. (Company Law, arts. 26, 30, 81 & 84.) The revision eliminates this initial contribution requirement and the related verification formality. (Decision, art. 7 ¶ 5.) Provision of subscribed capital in accordance with the company's articles of association will be sufficient. (Id. art. 7 ¶¶ 3 & 10.) The revision also deletes the requirement of a minimum percentage of cash contribution. (Id. art. 7 ¶ 4.)

Notably, if existing laws, regulations, or State Council decisions otherwise set out a minimum amount of registered capital or require actual payment of registered capital, those provisions will prevail. (Id. art. 7 ¶¶ 3 & 10.) (See, e.g., the Law of the People's Republic of China on Commercial Banks, art. 13; the Securities Law, art. 127; the Administrative Regulations on Futures Trading, art. 16; & the Insurance Law, art. 73.)

Pursuant to the Decision, the State Council issued a plan for business licensing reform in February 2014. (PLAN ON REFORMING THE REGISTERED CAPITAL SYSTEM [in Chinese] (Feb. 7, 2014), Central People's Government of the PRC website.) Among other steps, the plan calls for simplifying the business licensing formalities for companies, states that the aforementioned abolished requirements will not be subject to administrative review, and prescribes that the amount of paid-in capital not be shown on the business license. (Id. § 2 ¶ 1.)

Prepared by Bing Jia, Law Library Intern, under the supervision of Laney Zhang, Senior Foreign Law Specialist.

Author: Laney Zhang More by this author
Topic: Corporations and associations More on this topic
Jurisdiction: China More about this jurisdiction

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Last updated: 03/12/2014