China Released the New Capital Contribution Rules

On July 1, 2024, the State Council formally issued the Regulations on Implementing the Registered Capital Administration System of Company Law (the “Regulations”) with immediate effectiveness, aiming to strengthen the administration of the registration of the registered capital of the company, regulate the shareholders to perform their capital contribution obligations, safeguard the security of market transactions, and optimize the business environment. Most importantly, the Regulations clarify the arrangements during the transitional period of adjusting the time limit for shareholders to pay in their subscribed capital at existing companies.

1. General Capital Contribution Rules Stipulated by the Company Law 2024

According to the new Company Law (“Company Law 2024”) effective as of July 1, 2024, it has adopted a rule of 5-year maximum capital contribution term, meaning that all shareholders shall complete their respective contributions to the registered capital of a company within 5 years after the date of incorporation, unless applicable laws or regulations require otherwise.

The Company Law 2024 further provides that (1) all the companies incorporated before July 1, 2024 shall gradually adjust their capital contribution schedule in order to meet the rule of the new 5-year capital contribution term, unless applicable laws or regulations waive otherwise; and (2) company registry may discretionarily require companies to adjust their capital contribution term or registered capital amount if obviously abnormal (Article 266).

2. Companies should make adjustment within 3-year transition period to comply with the Regulations 

2.1 Limited Liability Company

• In general, for a limited liability company incorporated before July 1, 2024, the effective date of the Company Law 2024, if the capital contribution term of its registered capital exceeds the 5-year maximum term, the company shall adjust it to comply with the rule of the 5-year maximum term within a period from July 1, 2024 to June 30, 2027.

  
  

• In particular however, if the remaining capital contribution term from July 1, 2027 is less than 5 years, the company does not need to adjust it, while if the remaining capital contribution term from July 1, 2027 is more than 5 years, the company should change it to a term up to 5 years before June 30, 2027.

2.2 Company Limited by Shares

For a company limited by shares incorporated before July 1, 2024, its capital for subscribed shares shall be paid in full before June 30, 2027.

3. Exceptions to the rule of 5-year maximum capital contribution term

If a company incorporated before July 1, 2024, whatever it is a privately owned company, a foreign investment company or a state-owned company, has businesses  in connection with significantly strategic national tasks, national welfares and people’s livelihood, national security or significant public interests, it may keep its original capital contribution term upon consent from governments of provincial level or above.

4. Company registry may discretionarily adjust obviously abnormal capital contribution term or registered capital amount

The company registry may assess the authenticity of the registered capital by (1) taking into account shareholders’ business scope, business conditions, shareholders' ability to make capital contributions, main projects, the scale of assets and other factors , and (2) finding that the registered capital is contrary to the principles of truthfulness and reasonableness.

During soliciting public opinion for the draft Regulations, company registry gave a reference of the “obviously abnormal capital contribution”, i.e. “a capital contribution term exceeding 30 years or registered capital amount exceeding RMB 1 billion” may be deemed as “obviously abnormal capital contribution”. However, such references were removed and the formally issue Regulations keep silent on the standard of “obviously abnormal capital contribution”.

5. Companies are required to publicly disclose details of their registered capital

The Regulations detail the public disclosure requirements in relation to companies’ registered capital. Specifically:

• a company shall disclose to the public, through the National Enterprise Credit Information Publicity System, subscribed capital, paid-in capital, method of capital contribution, date of contribution, number of shares promotors have subscribed, any change to the equities or shares within 20 working days after such change occurs, and ensure the authenticity, integrality and accuracy of the disclosed information;

  
  

• the company registry may add and make public, through the National Enterprise Credit Information Publicity System, special marks to those companies which fail to adjust their registered capital or capital contribution term due to revocation of business licenses or compulsory closure or being blacklisted;

  
  

• the company registry may add and make public, through the National Enterprise Credit Information Publicity System, special marks to those companies which fail to adjust their capital contribution term or registered capital amount in accordance with the Regulations;

  
  

• the company registry may make an announcement through the National Enterprise Credit Information Public Disclosure System, if a company fails to apply for deregistration for 3 years from the date of revocation of its business license or ordered closure. The announcement period shall be not less than 60 days. If there is no objection from the creditors after the expiration of the 60-day announcement period, the company registry may deregister the company and make publication with special marks to those companies on the National Enterprise Credit Information Publicity System.

6. Administrative punishment over companies and their shareholders failing to comply with the Regulations

Companies who fail to disclose relevant information pursuant to the law or truthfully may be liable (1) to rectify the unlawful act and disclose the relevant information truthfully, (2) for a fine ranging from RMB 10,000 to RMB 50,000, escalating up to RMB 200,000 in severe case, and (3) to be listed in the blacklist and to be revoked the business license in severe case.

Shareholders or promoters who fail to make contribution may be liable (1) to make up the contribution to the company, and (2) for a fine ranging from RMB 50,000 to 200,000, and in severe case a fine of 5-15% of the underpayment.

Moreover, individuals (usually company’s directors and/or responsible management) directly responsible for the above two categories of violation may also incur personal fines from RMB 10,000 to RMB 100,000.