In China, registered capital refers to the total capital contribution and form to be paid-in by shareholders. Registered capital is publicly disclosed on the company's business license and related government databases. However, registered capital is not the paid-in capital of a company, it is the capital declared by shareholders in the Articles of Association ('AoA') and registered at the Administration of Industry and Commerce ('AIC').
There is no required minimum amount for the registered capital to establish a limited liability company in China, although special industries may specify such as finance, securities, and insurance.
For those doing business in China, understanding registered capital and its procedure is crucial to the company structure and incorporation. Administrative challenges can occur without declaring the amount, form, and date of registered capital properly - especially during a capital alteration.
Although no minimum amount of registered capital is provisioned in the Company Law of the People's Republic of China ('Company Law'), shareholders shall establish their respective form, amount, and date of their capital contributions within the governing body of company, the Articles of Association ('AoA'). Once the AoA is affixed with the seals of the shareholders, it is filed and registered at AIC and shareholders are obligated to fulfil their capital contribution as accordingly. In other words, shareholders are legally obliged to inject their declared capital contributions in the form and within the period declared in the AoA.
Equally, under Articles 8 and 9 of the Administrative Regulations of the People's Republic of China on the Registration of Market Entities, the specific registered capital or capital contribution of the company, the capital subscribed by each shareholder or investor and the AoA of the company shall still be regarded as registration items and shall be filed with the registration authority according to the law. Therefore, shareholders are still legally required to contribute their capital within the prescribed period and a company cannot be liquidated without the total registered capital is paid in.
Forms of capital contribution
Under, Article 27 of the Company Law of the people's Republic of China, capital can be contributed in into monetary capital and non-monetary capital. Non-monetary properties that can be financially assessed and ownership transferred as according to the law, however, properties are forbidden to be utilised as capital.
Non-monetary capital contribution includes the following:
Fixed Assets Contribution
Shareholders may contribute fixed assets such as machines, equipment, molds, and other movable property as capital contribution. According to Article 224 of the Civil Code of the People's Republic of China ('Civil Code'), the establishment and transfer of the real right of movable property shall take effect from the time of the delivery, unless otherwise provided by law.
The date of the capital contribution of the movable property shall be the date when the shareholder delivers the movable property as the capital contribution.
Real Estate Contribution
Shareholders may contribute immovable property such as the real estate as capital contribution. Under Article 209 of the Civil Code, the establishment, change, transfer, and elimination of the real right of real estate shall be effective after being registered according to law. Without registration, such alteration shall not be effective, except as otherwise provided by law.
Therefore, shareholders shall not only deliver the real estate contribution to the company, but also register the corresponding ownership transfer to the company. The date of capital contribution shall be the date of the registered ownership transfer.
Shareholder may use its holding equity in another company as the capital contributions in the newly established company. However, shareholders shall not use their equity as capital contribution in the below circumstances:
- Such equity has been pledged;
- Such equity is prohibited to be transferred as according to the articles of association or according to the law; or
- Such equity transfer has not obtained the required approval of relevant departments.
- Patent Contribution
Shareholder may use its patent right as the capital contribution to the company. Under the Patent Law of People's Republic of China, the patent application right and patent right can be transferred, and the parties concerned shall conclude a written contract and registered such transfer at the patent administration department under the State Council, who will announce such alteration. The transfer of the right to apply for a patent or the patent right shall take effect from the date of registration.
Under Articles 27 - 30 of the Company Law, non-monetary property contributed as a capital contribution shall be evaluated and assessed. Such value shall not be overestimated or underestimated and if actual value is significantly lower than the amount declared in the AoA, the respective shareholder who shall pay the difference, and other shareholder(s) at the time of the establishment of the company shall also bear joint and several liabilities.
Restricted and prohibited capital contributions
- Under the 3rd item of Article 20 of the General Principles for Loans of the People's Bank of China, loans shall not be used for equity investment, unless otherwise stipulated by the state. In addition, illegal income, non-legal currency, and currency prohibited or restricted by law shall not be used as monetary capital contribution.
- For non-monetary property rights, the property shall be free from defects or encumbrances, and there shall be no circumstances stipulating that such rights cannot be transferred in other agreements or contracts.
- Under the second paragraph of Article 10 in the Administrative Regulations of the People's Republic of China on the Registration of Market Entities, the shareholders of the company, the investors of non-corporate enterprises and the members of farmers' professional cooperatives (federations) shall not make capital contributions in the form of labor services, credit, the name of natural persons, goodwill, franchise rights or guaranteed property.
Due to the defects of collateral rights, the value of the collateral as capital contribution is generally not recognized by the law. Also, there are often issues in handling the change registration of the guaranteed property, hence it is generally not used for the capital contribution of shareholders.
- Shareholders shall not make capital contributions with the property in which they hold no transfer rights as according to law.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.