New Company Law Requires Full Payment of Registered Capital Within 5 Years
The business world in China is undergoing a significant change as the new “Company Law of the People’s Republic of China” has been implemented, requiring companies to meet new regulations regarding their registered capital. Previously, there were no limits on the investment period, leading to various issues such as blind subscriptions and excessively long capital contribution periods.
The new law stipulates that the registered capital of a limited liability company must be paid in full within five years from the date of establishment. This change has prompted hundreds of companies to announce reductions in their registered capital in order to comply with the new requirements.
One such company’s registered capital is planned to be reduced from 300 million yuan to 35 million yuan, while others are also taking rapid action to adjust their capital structures. The State Administration for Market Regulation has highlighted the need for this adjustment, citing instances of capital contribution periods exceeding 50 years and excessive amounts that violate the principle of authenticity.
Mr. Wang, a company executive, shared his struggle with the new regulations, stating that a mistake when declaring the registered capital in 2018 has now resulted in a significant financial burden. He emphasized the difficulty of paying 100 million yuan in actual payment as required by the new law.
Furthermore, the Red Star Capital Bureau discovered that none of the top 10 companies with the highest registered capital have actually paid in their contributions, raising concerns about the authenticity of capital and the impact on transaction security and creditors’ interests.
In response to the new regulations, many companies are choosing to reduce their registered capital, with some making announcements of reductions as high as 95%. This trend is not limited to ordinary companies, as even listed companies are taking action to comply with the new requirements.
Legal experts have suggested that companies can handle the situation through either actual payment of the capital, capital reduction procedures, or cancellation. The new Company Law aims to create an honest and trustworthy market environment, regulate capital contribution deadlines, and protect the interests of creditors.
As companies across China adapt to the new regulations, the business landscape is expected to undergo significant changes, promoting integrity and rationality in market transactions. The new law emphasizes the legal responsibility of shareholders to fully contribute their capital within five years, aiming to foster a more transparent and reliable business environment.