China’s SAMR Issues Draft Regulations Regarding Registered Capital for Public Comment
Published 21 February 2024
Yu Du
On 6 February 2024, the PRC State Administration for Market Regulation (SAMR) issued the draft of Provisions of the State Council on the Implementation of the PRC Company Law on the Registration of Registered Capital Management System (the Draft Provisions) for public comment by 5 March 2024.
The specific implementation measures are introduced as the supporting administrative regulations for the registration capital registration system revised in the amended Company Law promulgated by the Standing Committee of the National People’s Congress on 29 December 2023, aimed at seamlessly transitioning between the new and old systems for registering company capital.
Since the full implementation of the registered capital subscription registration system in 2013, China has faced challenges such as a rise in subscription registration cases, overly generous contributions, and unduly extended contribution periods. The updated Company Law seeks to refine this system, particularly for limited liability companies, mandating that the total subscribed capital by all shareholders be paid within five years from the company’s inception, as stated in the company’s articles of association.
Main Provisions
The Draft Provisions articulate the governance of company registration capital registration across various aspects, including a “3+5” adjustment arrangement for existing companies, management of companies with abnormal contribution periods and amounts, requirements for public disclosure, and the regulation of intermediary organizations. The draft consists of fifteen articles, with the main contents as follows:
1. Clarification on a 3-year transition period for existing companies
Limited liability companies with shareholder subscription periods exceeding 5 years must adjust the remaining contribution period to within 5 years during a 3-year transition period following the implementation of the new Company Law, namely, from 1 July 2024 to 30 June 2027. Joint-stock companies must pay their subscribed share capital within this transition period.
2. Defining applicable rules for the contribution period of newly established companies
According to the new Company Law, limited liability companies must pay their registered capital within 5 years from the date of establishment as specified in the company’s articles of association. Joint-stock companies must pay their subscribed share capital before registration.
The rules for capital increase are also clearly defined - limited liability companies must pay the increased subscribed registered capital within 5 years. Joint-stock companies must complete the registration of capital increase after all shareholders have paid their shares in full. For limited liability companies and joint-stock companies established through initiation or targeted fundraising, there is no need to submit capital verification certificates from capital verification institutions when registering the company.
3. Improvement of service levels by registration authorities
Company registration authorities should optimize the process and materials for adjusting contribution periods and amounts, and enhance the convenience of online processing. Companies meeting certain conditions may publicize their information through the national enterprise credit information public system for 20 days. If there are no objections during the public notice period, the company may proceed with capital reduction procedures.
4. Clarification on the determination and handling of companies with significantly abnormal contribution periods and amounts
1) For companies with a contribution period of over 30 years and contributions exceeding RMB1 billion, a comprehensive assessment will be made considering the characteristics of industry development, among other factors.
2) Registration authorities may organize professional assessments or conduct comprehensive evaluations with relevant departments.
3) With the consent of provincial market supervision departments, companies are required to adjust their contribution periods and amounts within six months.
4) If the registered capital of a limited liability company is excessively high, the registration authority may legally refuse registration.
5. Exceptions for specific companies
1) Companies established before the implementation of the Company Law, including private, foreign-invested, and state-funded companies undertaking major national strategic tasks, related to national economy and people’s livelihoods, or involving national security and significant public interests, may contribute according to the original contribution period with approval from the State Council or provincial-level governments.
2) If a company established before the implementation of the Company Law has its business license revoked, is ordered to close, or is deregistered, making it impossible to adjust its registered capital, or if the company cannot be contacted through its registered address or place of business and is listed as operating abnormally, the registration authority will manage it separately, marking and publicizing it specially in the national enterprise credit information public system.
6. Specific requirements for public disclosure of information
Companies must disclose information through the national enterprise credit information public system within 20 working days from the formation of the information. This includes the amount of capital subscribed and paid by shareholders, the method and date of contribution, the number of shares subscribed by the promoters, and changes in equity or shares of shareholders or promoters.
If a company fails to adjust its contribution period and amount as required, the registration authority must make a special note in the national enterprise credit information public system and publicize it to strengthen social supervision.
Comment
The issuance of these Draft Provision represents a significant step forward in the clarification and regulation of the company registration capital system. By introducing a “3+5” transition period for existing companies and establishing clear rules for the contribution period of newly established companies, the draft eliminates ambiguity and provides a structured framework for companies to adjust their capital contribution practices in compliance with the new Company Law. This clarity is particularly beneficial for companies navigating the transition, ensuring they can make the necessary adjustments without undue burden. The finalized provisions will take effect on 1 July 2024, according to the legislative process.
For investors, this draft offers a clear pathway to ensuring compliance with the revised Company Law. It is advisable for companies, both existing and new, to carefully review their capital contribution arrangements and make any necessary adjustments within the stipulated periods. Companies should also take advantage of the facilitated registration processes and ensure timely and accurate public disclosure of their capital contribution information.