Changes in capital requirements and annual inspection will simplify the set up and running of a business in China

By Richard Hoffmann, ECOVIS Beijing China

On October 25 the State Council executive meeting chaired by the Chinese Prime Minister Li Keqiang revealed the plan to implement innovative policies to reduce the costs for setting up a new company in China. As a result, the executive meeting stated five reformatory policies, which will also have significant impacts on foreign companies, especially small and medium-sized enterprises (SMEs), that are planning to expand into China or to extend their existing China business.

The registered capital requirements for starting a new business in China are influenced significantly. The existing minimum requirements for limited liability companies (RMB30,000), one-person limited liability companies (RMB100,000), and joint-stock companies (RMB5 million) will be cancelled. In addition to that, the period during which the full amount of the necessary registered capital has to be paid will no longer be influenced by the initial payment amount of the start-up company. Consequently, regarding the registration of a new business in China, the actual capital contributions will not be an object of interest in the business license anymore.

Concerning the annual inspection, the current inspection regime will be replaced by an annual reporting, through which relevant information the company should be made public. This will save companies costs and manpower to handle the annual inspection, where usually concerns several administration authorities. Another move to improve the transparency and to ensure a regulated implementation within the law, the executive meeting revealed the promotion of a credit system. Within this credit system, each entity is characterised by specific credit information (e.g. business registration, annual reports). In addition to that, the government will blacklist companies that violate the regulations and make them public.

Furthermore, the basis of the company registration will be changed. Subscribed capital contributions will substitute the actual capital contributions as the basis of the company registration process. Instead of having the funds on the date of the registration, the shareholders of the company will decide on the conditions for the subscription of contributions. With the change in this, shareholder will no longer need to employ an accounting firm to do the capital verification of the capital at the initial set up stage. Thus relevant cost will be saved.

And even though the date of implementation has not yet been revealed, these changes represent a significant step in the process of pushing forward the reforms within China’s company registration capital regime and create new opportunities for fund-limited companies that want to set up a business in the world’s fastest growing market.