China’s State Council Issues Implementation Regulations for the Company Law Registration Capital Management System
Published 25 July 2024
Sarah Xuan
To implement the provisions of the new Company Law concerning the registration capital management system, the State Council has promulgated the supporting administrative regulation “Regulations of the State Council on the Implementation of the Company Law of the People’s Republic of China regarding the Registration Capital Management System” (hereinafter referred to as the “Implementation Regulations”), which came into effect on July 1, concurrently with the new “Company Law.” The Implementation Regulations, tailored to the practical situation of registration capital management in China, introduce innovative rules such as a three-year transition period, verification of capital authenticity by registration authorities, and exceptions for specific companies’ capital payments. These measures aim to provide business entities with a flexible and efficient registration capital management process while ensuring the authenticity and legality of company capital. This article summarizes and interprets the main content of the Implementation Regulations.
1. Clarify the specific rules applicable to the duration of the contribution period
To minimize the impact on most normally operating existing companies and facilitate orderly, rational adjustments of the capital contribution period and amount, the Implementation Regulations, in line with the new “Company Law” establish a three-year transition period for existing companies. The Implementation Regulations specify the adjustments required for existing companies, further, standardize shareholders’ fulfillment of capital contribution obligations, and maintain the safety of market transactions. The specific provisions are as follows:
1) Improving the Subscribed Registration System for Newly Established Companies
For companies registered after July 1, 2024, according to the new “Company Law,” the registered capital of a limited liability company is the total amount of capital subscribed by all shareholders registered with the company registration authority. The subscribed capital must be fully paid by the shareholders within five years from the company’s establishment, as stipulated in the company’s articles of association. Where laws, administrative regulations, or decisions of the State Council provide otherwise regarding the actual payment, minimum amount, or capital contribution period of the registered capital of limited liability companies, those provisions shall prevail.
2) Transition Arrangement for the Subscribed Capital Contribution Period of Existing Companies
The Implementation Regulations establish a three-year transition period for companies registered before June 30, 2024. It specifies that limited liability companies with a remaining subscribed capital contribution period exceeding five years from July 1, 2027, must adjust their remaining subscribed capital contribution period to within five years by June 30, 2027, and record it in the company’s articles of association. Shareholders must fully pay the subscribed capital within the adjusted period. For joint-stock companies, founders must fully pay for their subscribed shares by June 30, 2027.
3) Specific Methods for Companies to Meet Capital Requirements
Companies with adjusted contribution periods can contribute capital in cash or in non-monetary assets such as physical assets, intellectual property, land use rights, equity, or claims that can be valued in monetary terms and transferred legally. Companies can also reduce the actual capital burden through equity transfers or capital reductions, except for assets prohibited by laws and administrative regulations from being used as capital contributions.
4) Consequences of Non-Adjustment
The company registration authority can order corrections for limited liability companies established before the new “Company Law” that fail to adjust the capital contribution period within the transition period. If companies refuse the corrections, the authority can make special annotations on the National Enterprise Credit Information Publicity System and disclose the information to the public.
2. Timely Adjustment of Obviously Abnormal Capital Contributions
1) Disposition Methods by Company Registration Authorities
The Implementation Regulations state that for companies with obviously abnormal capital contribution periods or registered capital, the company registration authority can assess the company’s business scope, operating conditions, shareholders’ capital contribution capacity, leading projects, and asset scale. The authority may require the company to provide an explanation, organize evaluations by industry professional institutions, or consult with relevant departments. If the contributions violate principles of authenticity and reasonableness, the authority can require timely adjustments to guide companies in honestly fulfilling their capital contribution obligations.
2) Key Areas of Evaluation
The definition of “obvious abnormality” by the company registration authority needs to be based on an objective analysis of the company registration data and scientific provisions in conjunction with the actual working situation. Only companies that are in apparent violation of the principle of authenticity and contrary to objective common sense shall be recognized as having “obvious abnormality.”
3) Involving Newly Established Companies
For newly established companies with obviously abnormal registered capital, the company registration authority should assess according to the above principles. If confirmed abnormal, the authority may decide not to register the company.
3. Exceptions for Adjusting the Capital Contribution Period
In addition to the above requirements for adjusting the capital contribution period, the Implementation Regulations, considering practical circumstances, define exceptions for specific companies that do not need to change their capital contribution period and require separate management for others.
1) Exemptions from Adjustment
Under the proposal filed by relevant authorities of the State Council or provincial governments, companies involved in national interests or significant public interests may be allowed by the State Administration for Market Regulation to contribute capital according to the original period. These companies include private, foreign-invested, and state-owned enterprises, typically engaged in national strategic tasks, public welfare, or national security.
2) Separate Management Cases
Companies that have their business licenses revoked are ordered to close or are deregistered, or those listed as having abnormal operations due to uncontactable registered addresses or business premises and whose capital contribution period and registered capital do not comply with these regulations and cannot be adjusted, will be managed separately by the registration authority. Such companies will have special annotations in the National Enterprise Credit Information Publicity System and be disclosed to the public. These companies can apply for reinstatement in the register. Upon review and meeting conditions, the registration authority can reinstate them.
4. Improving the Company Information Disclosure System
To stimulate business vitality and ensure transaction safety, the Implementation Regulations require public disclosure of actual capital contributions to create an honest market environment. Violations of disclosure requirements will incur administrative penalties, enhance social supervision, protect transaction safety, and build a trustworthy market. Specific provisions include:
1) Clarifying Information Disclosure Requirements
The Implementation Regulations require companies to disclose adjusted subscribed publicly and actual capital contributions, methods, periods, or adjusted shares within 20 working days after the relevant information is generated through the National Enterprise Credit Information Publicity System. Companies are legally responsible for the disclosed information’s authenticity, accuracy, and completeness.
2) Supervisory Methods for Disclosed Information
The Implementation Regulations state that the registration authority will randomly select inspection objects and enforcement officers to supervise the disclosure of subscribed and actual capital contributions. Additionally, companies will be classified and managed based on their credit risk status, enhancing the comprehensive application of credit risk classification results.
3) Legal Responsibilities for Disclosure Violations
The Implementation Regulations clarify that companies failing to disclose information as required will be penalized according to the new “Company Law” and the “Interim Regulations on Enterprise Information Disclosure” .
Comments
The Implementation Regulations is a comprehensive administrative regulation that aligns with the new “Company Law” to enhance the registration capital management system. The Implementation Regulations introduce innovative rules such as a three-year transition period, verification of capital authenticity by registration authorities, and specific exceptions for certain companies’ capital payments. These measures provide a flexible and efficient registration process while ensuring the authenticity and legality of company capital.
Besides, the Implementation Regulations address abnormal capital contributions, specify key evaluation criteria, and highlight exceptions for new companies with abnormal capital registrations. Furthermore, the Implementation Regulations also establish exceptions for adjusting capital contribution periods based on national or significant public interests, outline separate management for companies with significant compliance issues, and improve the company information disclosure system. These regulations stimulate business activity, protect market transactions, and create an honest and credible market environment. Through continuous optimization of the registration capital management system, the Implementation Regulations support the sustainable development of companies and the broader economy, reinforcing the principles of integrity and compliance in corporate operations.