The new PRC Company Law, which comes into effect on July 1, 2024, has drawn significant attention, particularly regarding the adoption of a series of new rules for registered capital contribution made by shareholders. However, detailed answers for some practical questions are not addressed in the new PRC Company Law. In order to effectively implement the new rules, the State Council issued the Provisions on the Implementation of the Registered Capital Registration and Management System under the Company Law ("Provisions"), which are implemented concurrently with the new Company Law on July 1, 2024.
The Provisions specifically address how the new registered capital contribution system ("New System") applies to companies newly established under the new Company Law ("New Companies") and companies already established before its implementation ("Existing Companies").
Below is a summary of the New Company Law and the Provisions with respect to the System for these two categories of the companies.
I. New Companies
Shareholders of all New Companies must fully complete the registered capital contributions within 5 years from their establishment date.
II. Existing Companies
1. Transition Period
The Provisions provide for a uniform transition period of 3 years, from July 1, 2024 to June 30, 2027. During this period, the Existing Companies whose registered capital has not been fully paid up may need to adjust their registered capital.
2. Adjustments
1. If its remaining contribution period, as stipulated in its original charter documents, is less than 5 years following July 1, 2027, the Existing Company is not required to make any adjustment.
If its remaining contribution period, as stipulated in its original charter documents, is more than 5 years following July 1, 2027, the Existing Company must make adjustments to ensure that the revised contribution period will conclude no later than by June 30, 2032.
2. If the contribution period or the registered capital amount stipulated in the charter document of any Existing Company contravenes the principles of authenticity and rationality, local registration authority ("AMR") is authorized to intervene, at its sole discretion, by initiating an independent assessment, and then order the Existing Company to revise its charter document to shorten the contribution period or to reduce the registered capital. The key determinants guiding the AMR's decision include business scope, operation conditions, shareholders' contribution capability, actual businesses, and asset scale, etc.
3. Risks
If any Existing Company fails to adjust its contribution period and/or registered capital as stipulated, AMR will, among the other things, make a special notation on the file of such company and publish it on the Credit Publicity System. It would adversely affect the company's social credibility, and result in obstacles for the company when financing, participating biddings or applying for any administrative approvals.
III. Publication
The Provisions and the new Company Law further specify that New Companies and Existing Companies shall disclose information related to their registered capital on the Publicity System within 20 working days from the date of its formation or change. This information includes, (i) subscribed and paid-in capital; (ii) method of contribution; (iii) contribution period; (iv) date of contribution; (v) changes in shareholding. This kind of information had not been mandated for disclosure under the previous Company Law. According to the new laws, failure to publish may lead to a fine of up to CNY 200,000. Additionally, the responsible executives and other directly responsible personnel may also encounter a fine of up to CNY 100,000.
In light of the aforementioned new regulations, it is advisable to conduct a further verification and confirmation of the payment status regarding the registered capital of subsidiaries in China. Please ensure that any necessary adjustments are made in a timely manner during the designated transition period.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.