China has recently updated its regulatory framework with the State Council’s Provisions on the Implementation of the Registered Capital Management System under the Company Law (Decree No. 784), which took effect on July 1, 2024.
These provisions are designed to enhance transparency, regulate shareholder commitments, ensure the safety of market transactions, and improve the overall business environment. Additionally, they underscore the supportive role of company registration authorities, which are tasked with assisting companies as they adapt to these changes. This includes the provision of operational guidelines and the enhancement of registration procedures.
The new rules address several key aspects of corporate governance, particularly concerning the registered capital of companies, reflecting China’s ongoing commitment to refining its business regulations to foster a more transparent and regulated market.
Adjustment of Capital Contribution Periods
For companies registered before June 30, 2024, if the remaining period for capital contributions of a limited liability company extends beyond five years from July 1, 2027, such companies are required to shorten this period to five years by June 30, 2027, and make appropriate amendments to their articles of association. Within this revised timeframe, shareholders must fully pay their subscribed capital contributions.
Similarly, the founders of joint-stock limited companies must complete payment for their subscribed shares by the same date, June 30, 2027. However, if a company’s operations or production is tied to national or significant public interests, and if the relevant state or provincial authority provides a directive, the State Council’s market regulatory authority may permit capital contributions to be made over the original stipulated period.
Mandatory Public Disclosure
Changes in capital contributions regarding their amount, method, or timeline must now be publicly disclosed. This disclosure is required within 20 working days through the National Enterprise Credit Information Publicity System, aiming to maintain transparency in corporate financial practices.
Enhanced Supervision and Inspection
The regulations authorize company registration authorities to perform random inspections on publicly disclosed capital contributions to ensure compliance and accuracy. Companies failing to adhere to these new requirements may be directed to correct their actions. Persistent non-compliance can lead to public notifications and potential penalties.
Practical Recommendations for Compliance and Strategy
The introduction of these provisions indicates China’s focus on the actual injection of capital, aiming to discourage investors from establishing companies with artificially inflated capital amounts.
While adapting to new regulations requires some adjustments, it also provides an opportunity for foreign companies to reinforce their commitment to their investments into China in a fairer and more transparent business environment. It is advisable for companies to review their capital structures and timelines to ensure they align with the new requirements. Planning adjustments well ahead of the deadline will facilitate smoother transitions.
Moreover, implementing effective mechanisms for reporting changes in capital contributions is essential to ensure compliance. Companies can conduct regular internal audits and compliance checks to verify that the capital injection plans outlined in their articles of association are being properly executed and that disclosures are made accurately and on time.
What Can CW Do For You
Given the new provisions under China’s Registered Capital Management System, CW can offer a range of services to help companies cope with the changes:
- Assessment of Existing Capital Structure – Evaluate the company’s current capital structure, including the timing and methods of capital contributions, to identify any areas that need adjustment to comply with the new regulations.
- Recommendations for Restructuring – Provide guidance on restructuring capital contributions to align with the five-year timeframe requirement and optimize the company’s financial strategy.
- Implementation of Internal Controls – Help establish internal controls and procedures to ensure accurate tracking of capital contributions and timely reporting of any changes.
- Verification of Capital Contributions – Conduct due diligence on companies’ capital contributions to verify their accuracy and compliance for potential investors or acquirers.
We understand that these regulatory changes can be confusing. Our team is here to simplify the process and ensure your company stays on track with the new Registered Capital Management System. Let us help you review your capital structure, manage reporting requirements, and make any necessary adjustments. Reach out to us for a free consultation and ensure a smooth transition for your business in China.
