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China – Amended Company Law Eases Burdens.

27 January, 2014

 

 
A new amendment to China’s Company Law simplifies the capital system applicable to companies established in China. The amendments were passed by the Standing Committee of the National People’s Congress of the People’s Republic of China on 28 December 2013, and will take effect on 1 March 2014.
 

China’s Ministry of Commerce (MOFCOM) and State Administration for Industry and Commerce (SAIC) are currently in the process of revising the various laws and regulations applicable to foreign-invested enterprises (FIEs). Once the revisions are complete, we expect that the simplified capital system will apply to FIEs.

 

The amendment changes 12 articles of the 2005 Company Law. The key changes are:

 

  • Subscribed Capital System To Replace Mandatory Paid-Up Capital
    Currently, capital must be fully paid in within certain statutory time limits. The new amendment instead adopts a subscribed capital system, under which investors may, subject to industry-specific rules, discuss and agree on the timing and amounts of contributions.
  • Verification And Registration Requirements Removed
    Under the amended Company Law, the total paid-up capital, and the contributions of each investor, will no longer need to be registered in competent registration authority. Capital verification of each capital contribution will also no longer be required.
  • No Minimum Registered Capital
    Currently, the following minimum registered capital amounts are required:

    • RMB30,000 for a limited liability company with multiple investors;
    • RMB100,000 for a limited liability company with a single investor; and
    • RMB5,000,000 for a company limited by shares.

 

The Company Law amendment removes each of these minimums. Minimum capital requirements may, however, continue to be imposed by industry-specific regulations.

 

  • Form Of Capital Contributions Unrestricted
    Currently, cash contributions cannot be less than 30% of total registered capital. This minimum requirement is removed by the new amendment, which means that, once the amendment is effective, investors will have more freedom to agree on the form of capital contributions.

 

2. Impact On Foreign Investors

 

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. The effect is to create uncertainty as to when and how the Company Law amendments will apply to FIEs. As noted above, however, MOFCOM and the SAIC are currently reviewing foreign investment laws and have said that the FIE laws will be revised.

 

Once the FIE laws are revised, we expect that all FIEs will benefit from the new Company Law amendments. Foreign investors are likely to particularly appreciate the timing and form flexibility for capital contributions.

 

herbert smith Freehills

 

For further information, please contact:

 

Karen Ip, Partner, Herbert Smith Freehills

karen.ip@hsf.com

 

Gary Lock, Partner, Herbert Smith Freehills

gary.lock@hsf.com

 

Nanda Lau, Herbert Smith Freehills

nanda.lau@hsf.com

 

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