On 28 December 2013, the 12th Standing Committee of National People's Congress decided to make the fourth major changes to the Company Law of the People’s Republic of China. The New Company Law aimed to reform the existing company establishment system, streamline the registration formalities and relaxing the capital threshold for setting up a company in China.
The new company law effectively encourages more local entrepreneurs to start their own businesses. It also opened door to many small to medium size foreign investors who are looking at expanding to China markets.
The New Company Law has been effective from 1 March 2014.
Key Changes：
No time limits for registered capital commitment
Under the previous provisions, the initial 20% of registered capital is required to be made within 3 months from the acquisition date of the temporary business license and the remaining balance shall be injected within 2 years time from the establishment date.
Since the new company law, shareholders will the option to set their own contribution timeline, the old time requirement is removed. The new business licenses will only display the full registered capital amount without showing how much capital has been injected by the owners.
Without the time requirement, investors can contribute registered capital over a much longer period. Investors are given much more flexibilities in developing their operations.
Minimum registered capital requirement has been abolished
In the past, the minimum capital requirement for foreign businesses to set up in China is generally USD 200,000. The new company law removed the minimum registered capital requirements. Investors now can decide on the capital amount and payment methods based on their own situations.
However, for certain special industries, higher registered capital is still required. Moreover, in practice, government officials remain the power to demand more capitals from foreign investors if the proposed capital amount is deemed to be unrealistic to make the project commercially viable.
Cancellation of minimum cash contributions of the registered capital
The previous company law required investors to provide at least 30% cash contribution of the entire registered capital. The new company law lifted this ratio requirement. Shareholders now can decide the ratio between cash and other assets such as plant and equipments, Intellectual properties, etc.
High tech companies are likely to be benefited by highly-valued technologies contribution if assets can be evaluated and titles can be transferred.
Capital Verification Report is no longer required by the Business Administration Bureau
Due to the old 20% initial capital registration requirement, the official business license cannot be issued by the local Business Administration Bureau until they reviewed a capital verification report prepared by the local CPA. This report is no longer required by the Business Administration Bureau when they issuing the business license.
However, it does not mean that foreign investors will not need to prepare Capital Verification Reports anymore. In practice, other authorities such as bank and foreign exchange administration will still require such reports to be filed before you can access your capital in China.
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