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), effective from 1 July 2024.
These provisions aim to increase transparency, regulate shareholder commitments, ensure market transaction safety, and enhance the business environment. They highlight the supportive role of company registration authorities, which are responsible for assisting companies with these changes, including providing operational guidelines and improving registration procedures.
The new rules focus on several key aspects of corporate governance, particularly regarding the registered capital of companies, reflecting China’s ongoing efforts to refine business regulations for a more transparent and regulated market.
Adjustment of Capital Contribution Periods
For companies registered before 30 June 2024, if the remaining period for capital contributions of a limited liability company extends beyond five years from 1 July 2027, these companies must shorten the period to five years by 30 June 2027 and amend their articles of association accordingly. Shareholders must fully pay their subscribed capital contributions within this revised timeframe.
Similarly, the founders of joint-stock limited companies must complete payment for their subscribed shares by 30 June 2027. However, if a company's operations or production is linked to national or significant public interests, and if the relevant state or provincial authority issues a directive, the State Council’s market regulatory authority may allow capital contributions to be made over the original stipulated period.
Mandatory Public Disclosure
Changes in capital contributions regarding 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 uphold transparency in corporate financial practices.
Enhanced Supervision and Inspection
The regulations authorise company registration authorities to conduct random inspections on publicly disclosed capital contributions to ensure compliance and accuracy. Companies failing to meet 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
These provisions signal China’s focus on the actual injection of capital, aiming to deter investors from establishing companies with artificially inflated capital amounts.
While adapting to these regulations requires some adjustments, it also offers foreign companies an opportunity to strengthen their commitment to investments in China within a more transparent and regulated business environment. Companies should review their capital structures and timelines to ensure compliance with the new requirements. Planning adjustments well before the deadline will facilitate a smoother transition.
Moreover, implementing effective mechanisms for reporting changes in capital contributions is crucial for compliance. Regular internal audits and compliance checks can help verify that capital injection plans outlined in the articles of association are properly executed and that disclosures are accurate and timely.
What Can Woodburn Do For You
Given the new provisions under China’s Registered Capital Management System, Woodburn can offer a range of services to assist companies in adapting to these changes:
Assessment of Existing Capital Structure – Evaluate the company’s current capital structure, including the timing and methods of capital contributions, to identify areas needing adjustment to comply with the new regulations.
Recommendations for Restructuring – Provide guidance on restructuring capital contributions to meet the five-year timeframe requirement and optimise 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 complex. Our team is here to simplify the process and ensure your company remains compliant with the new Registered Capital Management System.
Woodburn Accountants & Advisors is one of China’s most trusted business setup advisory firms.
Woodburn Accountants & Advisors is specialized in inbound investment to China and Hong Kong. We focus on eliminating the complexities of corporate services and compliance administration. We help clients with services ranging from trademark registration and company incorporation to the full outsourcing solution for accounting, tax, and human resource services. Our advisory services can be tailor-made based on the companies’ objectives, goals and needs which vary depending on the stage they are at on their journey.
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Schedule a 30-mins complimentary, no-obligation call to see how Woodburn can help you. Book a call with our Head of Business Advisory - Kristina Koehler-Coluccia.
Topics we can advise on include:
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