China Releases Implementing Provisions on Registered Capital Registration Under New Company Law

On July 1, 2024, the State Council released the Provisions on Implementing the Registered Capital Registration Administration System under the Company Law of the People’s Republic of China (the “Implementing Provisions”), which coincide with the effective date of the new Company Law of the People’s Republic of China (the “New Company Law”).

Our previous alert, “China Makes Welcome Amendments to Its Company Law”, provides a comprehensive overview of the key amendments and our observations regarding the New Company Law. The Implementing Provisions primarily clarify the grace period for existing limited liability companies to comply with the new registered capital registration requirements under the New Company Law.

This alert summarizes the key points of the Implementing Provisions and offers high-level guidance to foreign investors and their subsidiaries in the PRC.

3-Year Grace Period for Existing Limited Liability Companies for Self-Adjustment

The New Company Law introduces a 5-year maximum capital contribution timeline applicable to all limited liability companies. However, for companies established before June 30, 2024 (the “Existing Limited Liability Companies”), there was ambiguity regarding the start date for calculating the 5-year maximum capital contribution timeline. The Implementing Provisions confirm that companies will have a 3-year grace period, from July 1, 2024, to June 30, 2027 (the “3-Year Grace Period”), to adjust their remaining capital contributions to align with the 5-year maximum timeline starting from July 1, 2027. This adjustment must be recorded in the company’s articles of association if the remaining contribution period exceeds 5 years from July 1, 2027.

In summary, Existing Limited Liability Companies should adjust their capital contribution timelines within the 3-Year Grace Period to ensure compliance with the New Company Law’s maximum limit.

Additionally, companies must disclose any adjustments to their subscribed capital contributions, paid-in capital amounts, methods of capital contribution, or contribution periods to the public through the National Enterprise Credit Information Publicity System (the “System”) within 20 working days from the date of the adjustment.

Adjustments to Capital Contribution Amount and Period by the Company Registration Authority

Under the New Company Law, the company registration authority has the power to examine the amount and timeline of capital contributions for limited liability companies. The Implementing Provisions further clarify that if the company registration deems the registered capital amount or timeline of a limited liability company to be abnormal (considering factors such as the company’s business scope, operating status, shareholders’ ability to contribute, primary business activities, and asset scale), the authority may require the company to make timely adjustments.

Implications or Penalties Resulting from Violations of Registered Capital Registration Requirements

The company registration authority may conduct random inspections of subscribed and paid-in capital. Companies that fail to comply with the Implementing Provisions regarding capital contribution timelines or subscribed capital amounts will be requested to make adjustments. If companies do not correct the issues within the prescribed period the company registration authority will publicly disclose the non-compliance in the System. Shareholders of non-compliant companies will face fines ranging from CNY50,000 to CNY200,000 or fines between 5% and 15% the outstanding capital amount if they fail to contribute capital on time. Companies that fail to disclose their adjustments in accordance the Implementing Provisions may face fines between CNY10,000 and CNY 200,000.

The Implementing Provisions to support the implementation of the registered capital administration under New Company Law and provide a suitable grace period for Existing Liability Companies to make adjustments in line with the New Law. Foreign investors are advised to review their capital contribution and adjust the contribution timeline in accordance with the Implement Provisions.