In China, under Company Law of the People’s Republic of China (2014), there is no required minimum amount for registered capital to establish a limited liability company in China. Although special industries may specify a minimum amount such as in finance, securities and insurance.
The total amount of capital registered is not required to be contributed by the shareholders into the entity. Rather, the registered capital refers to the total amount to be paid by the shareholders, as stipulated in the Articles of Association prior to the registration of the company. Therefore, the registered capital recorded on the business license may not reflect the total amount of capital contributed in the company.
Form of capital contribution
Capital may be contributed in cash, in kind, or using intellectual property rights, land use or other non-monetary assets such as machinery, industrial property, proprietary technology and so forth. However, the value of non-monetary assets should be evaluated by a Chinese market specialist and in comparison, with Chinese market prices. Any machinery and equipment contributed by foreign shareholders shall satisfy all of the following requirements:
- necessary for production in the enterprise;
cannot be manufactured in China; and - quality shall be sufficient to meet the technical performance and delivery time requirements of the enterprise.
Contributed industrial and proprietary technology contributed by foreign shareholders shall satisfy the below conditions:
- owned by the foreign shareholder; and
- used to produce new products urgently required by China or used to produce products with a ready export market.
Any non-monetary assets imported as a capital contribution from foreign shareholders shall also adhere to the relevant import laws and regulations.
Prohibited forms of capital contribution include labour, services, credit, the name of a natural person, credit standing or franchising right or property on which there is a guaranty.
Capital Verification
All capital contribution is subject to the examination and verification conducted by a legally established capital verification institution. Generally, accounting firms, laws and asset appraisal institutions are eligible to conduct capital verification. Once the capital is verified, a certificate shall be issued stating the currency type and amount of monetary contributions, the certification of value equivalent to the market value.
For foreign shareholders, the certification should indicate the foreign bank account which transferred the capital and the bank account shall be retained open. If the bank account is not recorded or the bank account is closed, the capital may not return to the foreign shareholder or the shareholder may face several procedures before the capital is returned.
If the shareholder wishes to transfer their share of the company, the capital verification certificate is required as proof of capital contribution. No share transfer can be transferred without such certificate. It is advisable to inject the capital in one singular amount rather than in staggered amounts, as the capital verification and certificate are required for each time the capital is injected.
Capital may be contributed and registered in foreign currency. However, the capital contribution shall be returned in the same currency it was contributed and registered.
Typically, companies in China prefer to register a high capital to show a high market and trust value, which can encourage partnerships with large and multi-national companies. Conversely, a low registered capital shows a low market and trust level. Therefore, it is important to verify the actual paid-in capital against the registered capital.
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