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Company Formation China: Amended Company Law Lowers Threshold [1/2]
By Richard Hoffmann, ECOVIS Beijing China
For those who plan on registering a company in the galloping new year of the horse, good fortune is on your side as an amendment to the PRC Company Law (the “amendment”) has been issued on the 28th December 2013. In this part of a two-part blog entry, we will be discussing the changes in the Amended Company Law. Then following this entry, a second part will further explain the implications this has for you and the Chinese market.
After carefully comparing the amended Company Law, it’s clear to us that all the revised paragraphs are related to the registration requirements and procedure, therefore lowering the threshold for newly set up companies, ultimately making it easier for the registration of new businesses. The graphic below shows the main revised sections:
Fortunate to all investors, these revisions, issued by the Executive Committee of the National People’s congress, will take effect on the 1st March 2014.
Though beneficial in the sense that it provides a simpler procedure and a lower threshold for registering new companies, we must also be aware that this is just the general amendment to the Company Law, suggesting that possibl
e further interpretation and implementation of rules may follow in the near future.
For the foreign invested enterprises, the amendment of the Company Law may not be fully enjoyed as they are also subject to the laws and regulations governing incorporation and operation of foreign invested enterprises. Further details on how to apply these Amendments to foreign invested enterprises are not yet published, but there is a general expectation that the Chinese government will do so soon.
In addition, exceptions from the Company Law will also occur when other PRC laws, administrative regulations and State Council decisions stipulate otherwise regarding registration requirements. Therefore, though the amendment of the Company Law may have generally eased registration, it still requires the companies to be aware of the other regulations involving their specific trade. Moreover, when industry specific laws and regulations stipulate otherwise, the more specific law will prevail. Therefore we’d recommend companies to first fully understand their industry before looking at the amended Company Law. If you’d like to learn more about a particular industry or the particulars in your trade, don’t hesitate to contact us for further information.
With the help of our professionals, we’ve created a table to help you better understand the revised articles, so that you can more easily assure your compliance:
| Article No. | Before Amendment | After Amendment |
| Article 7, Paragraph 2 | In the business license of a company shall clearly be stated such items as the name, domicile, registered capital, actually received capital, scope of business and name of the legal representative of the company. | Deleted |
| Article 23, Paragraph 1, Item 2 | The following conditions shall be met for the incorporation of a company with limited liability: (2) The capital contributions of the shareholders reach the statutory minimum amount of capital. | The following conditions shall be met for the incorporation of a company with limited liability: (2) the amount of capital contributions subscribed for by all of its shareholders conforms to the articles of association. |
| Article 26 | The registered capital of a company with limited liability shall be the amount of capital contributions subscribed for by all of its shareholders, as is registered with the company registration authority. The amount of the initial capital contributions made by all of the shareholders of the company shall be not less than 20 percent of the company’s registered capital, or not less than the statutory minimum amount of the registered capital either, and the remainder shall be paid for in full by the shareholders within two years from the date the company is established; and in the case of an investment company, it may pay for the remainder in full within five years.The minimum amount of the registered capital of a company with limited liability shall be RMB 30,000 yuan. Where a greater amount is provided for by laws or administrative regulations, such provision shall prevail. | Article 26 The registered capital of a company with limited liability shall be the amount of capital contributions subscribed for by all of its shareholders.Where a greater amount is provided for by laws or administrative regulations, such provision shall prevail. |
| Article 27, Paragraph 3 | The amount of capital contributions made by all of the shareholders in currency shall not be less than 30 percent of the registered capital of a company with limited liability. | Deleted |
| Article 29 | After the shareholders have made their capital contributions, such capital contributions shall be subject to capital verification by a capital verification authority set up according to law, which shall issue capital verification certificates. | Deleted |
| Article 30 changed to Article 29 | Article 30 After the initial capital contributions made by shareholders have been verified by a capital verification authority set up according to law, a representative designated by all the shareholders or a proxy jointly entrusted by them shall submit to the company registration authority such documents as a written application for registration of the company, the company’s articles of association and the capital verification certificates, in order to apply for registration of the incorporation of the company. | Article 29 After the shareholders subscribe the capital contributions in full according to the company’s articles of association, a representative designated by all the shareholders or a proxy jointly entrusted by them shall submit to the company registration authority such documents as a written application for registration of the company and the company’s articles of association, in order to apply for registration of the incorporation of the company. |
| Article 33, Paragraph 3 | The company shall register with a company registration authority the names or titles of its shareholders and the amount of their capital contributions; and where items of registration are altered, it shall have the registration altered accordingly. Without registration or without registration for alteration, the company shall not act against the third party. | Deleted |
| Article 59, Paragraph 1 | The minimum amount of the registered capital for a one-person company with limited liability is 100,000 yuan. The shareholder shall make the capital contributions in one lump sum as stipulated by the articles of association of the company. | Deleted |
| Article 77 changed to Article 76 | Article 77 The following conditions shall be met if a company limited by shares is to be incorporated:(2) The share capital subscribed for and raised by promoters reaches the statutory minimum amount of capital; | Article 76 The following conditions shall be met if a company limited by shares is to be incorporated: (2) The total of share capital subscribed for or the total amount of paid-in capital raised by all the promoters conforms to the articles of association; |
| Article 81 changed to Article 80 | Article 81 Where a company limited by shares is incorporated by means of promotion, its registered capital shall be the total amount of the share capital subscribed for by all the promoters, as is registered with the company registration authority. The initial capital subscriptions by all the promoters of the company shall be not less than 20 percent of the registered capital and the remainder shall be paid in full by the promoters within two years from the date the company is incorporated; in the case of an investment company, it may do so within five years. Before the money is furnished in full, the company shall not offer shares to others.Where a company limited by shares is incorporated by means of share offer, its registered capital shall be the total amount of the actually received share capital as is registered with the company registration authority. The minimum amount of the registered capital of a company limited by shares shall be 5,000,000 yuan. Where the minimum amount of the registered capital of a company limited by shares is greater than the said amount, as is stipulated by laws or administrative regulations, the provisions there shall prevail. | Article 80 Where a company limited by shares is incorporated by means of promotion, its registered capital shall be the total amount of the share capital subscribed for by all the promoters, as is registered with the company registration authority. Before the money of the share capital subscribed for by all the promoters is furnished in full, the company shall not offer shares to others.Where a company limited by shares is incorporated by means of share offer, its registered capital shall be the total amount of the actually received share capital as is registered with the company registration authority. Where the actual registered capital or the minimum amount of the registered capital of a company limited by shares are otherwise specified in laws or administrative regulations，or decisions of the State Council, the provisions there shall prevail.
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| Article 84 changed to Article 83 | Article 84 Where a company limited by shares is incorporated by means of promotion, each of the promoters shall, in writing, subscribe for the full portion of the shares to be subscribed for by him as stipulated by the company’s articles of association; if a promoter offers to pay the subscriptions in a lump sum, he shall do so immediately; and if a promoter offers to pay the subscriptions by installments, he shall immediately pay for the first installment. Where a promoter invests with non-currency property, he shall go through the formalities for the transfer of his property rights according to law.Where a promoter fails to pay the subscriptions in accordance with the provisions of the preceding paragraph, he shall be liable for the default in accordance with the promoters’ agreement. After the initial payment of the subscriptions by the promoters, the board of directors and the board of supervisors shall be elected. The board of directors shall submit to the company registration authority the company’s articles of association, the capital verification certificate issued by the capital verification authority, which is set up according to law, and the other documents specified by laws or administrative regulations, in order to apply for registration of the incorporation of the company. | Article 83 Where a company limited by shares is incorporated by means of promotion, each of the promoters shall, in writing, subscribe for the full portion of the shares to be subscribed for by him as stipulated by the company’s articles of association, and shall pay the subscriptions in accordance with the articles of association. Where a promoter invests with non-currency property, he shall go through the formalities for the transfer of his property rights according to law.Where a promoter fails to pay the subscriptions in accordance with the provisions of the preceding paragraph, he shall be liable for the default in accordance with the promoters’ agreement. After the promoters subscribed, in writing, for the full portion of the shares to be subscribed for by him as stipulated by the company’s articles of association, the board of directors and the board of supervisors shall be elected. The board of directors shall submit to the company registration authority the company’s articles of association and the other documents specified by laws or administrative regulations, in order to apply for registration of the incorporation of the company. |
| Article 178, Paragraph 3 | After reduction of the capital, the amount of the company’s registered capital shall not be less than the statutory minimum. | Deleted |
If you want to learn more about the current changes and find out whether you can profit from those changes, give us a call +86 10-65616609 (ext 811/806) or contact us directly via Beijing@ecovis.com
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Richard Hoffmann
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