According to the official news, the changes were intended to promote responsible shareholder behavior and contribute to a more robust business environment. Below are some key highlights of these amendments:
Full Payment of Registered Capital within Five Years
A notable amendment in the law is the obligation for shareholders of a limited liability company (LLC) to fully contribute to the company’s registered capital within five years from the date of the LLC’s establishment, as per their subscription agreement. Moreover, the board of directors can issue notices of deprivation to shareholders who still need to fulfill their capital contribution obligations within the prescribed time frame. Shareholders who disagree with the deprivation notice have 30 days from the receipt of the notice to file a lawsuit with the People’s Court.
Shareholders of Chinese companies need to review these changes and begin meticulous preparations for their implementation. Investors planning to establish a company in China should consider the revised regulations regarding capital contributions.
The scope of the application includes not only newly established companies but also existing companies. Therefore, existing company shareholders need to review the company’s registered capital thoroughly：
- If it cannot be fully paid within five years, they should timely initiate a capital reduction procedure to decrease the registered capital.
- If it is confirmed that the registered capital cannot be paid by the due date and another company is interested in the acquisition, consider transferring ownership through a change in equity.
- If the company has no actual business operations, it can proceed with its dissolution.
No Mandatory Supervisor Required
The revised Company Law permits companies to establish only a board of directors without a board of supervisors. Companies that only set up a board of directors should establish an audit committee under the board to exercise the powers of the board of supervisors.
The Company Law further simplifies the organizational structure of companies. For companies that are smaller in scale or have fewer shareholders, it is possible to appoint a single director, and instead of setting up a board of supervisors, appoint a single supervisor. It is permissible not to appoint a supervisor for smaller LLC or those with fewer shareholders, with the unanimous consent of all shareholders.
Optimize the Company Registration and Deregistration Regulations
A new chapter on company registration is added, specifying the matters and procedures for company registration, change registration, and deregistration.
- Clarify the legal validity of electronic business licenses, announcements made through the national enterprise credit information publicity system, and resolutions passed via electronic communication methods in meetings.
- The scope of capital contribution has been expanded to include two types of non-monetary assets: equity and debt.
- Relaxes the restrictions on establishing single-shareholder LLC and permits forming single-shareholder joint-stock companies.
- Improves the company liquidation system, reinforcing the obligations and responsibilities of the liquidators and liquidation committee members.
- If a company has not incurred any debts during its existence or has settled all its debts, it can cancel its company registration through a simplified procedure with the commitment of all shareholders.
The latest updates to the Company Law introduce a variety of new regulations designed to streamline the company investments and finance, while also improving corporate governance. These updates will be discussed in more detail in our upcoming articles.
Should you have any questions about company registration, registered capital, company deregistration, etc. Please contact our expert team for further discussion.
Integra Group is a fully licensed asia-focused accounting, taxation, and business advisory firm – with dedicated offices in Shanghai, Beijing, Singapore and Taipei. We’ve helped companies ranging from Fortune 500 companies to small to medium sized businesses establish and grow their presence in Asia.
