What are the requirements of capital contributions (registered and paid in capital) of a Chinese limited liability company?
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This article gives an overview of the equity structure of Chinese limited liability companies (有限责任公司). It highlights some of the salient issues regarding the requirements of registered capital (注册资本) and paid-in capital (实收资本). This article is in line with the most updated version of the Company Law of the People’s Republic of China《中华人民共和国公司法》as revised by the National People’s Congress (全国人民代表大会常务委员) on October 27, 2005, which came into effect on January 1, 2006.
It should be noted from the outset that Chinese limited liability companies do not have a share capital. It is wrong to refer to “shares” (股份) or “share capital” (股本) of a Chinese limited liability company. What it has and must have is a registered capital.
Registered capital
The registered capital of a limited liability company is the total amount of the capital contributions subscribed to by all the shareholders (全体股东认缴的出资额) that have registered in the company registration authority (公司登记机关). The registered capital is stated in the company’s Articles of Association (章程), as well as its business license (营业执照). It may be expressed in RMB or US dollars.
Paid-in capital
Paid-in capital (实收资本) is the amount of the capital contributions actually paid (实际交付) by all the shareholders that have registered in the company registration authority (Article 26). The paid-in capital of a company is stated in the company’s business licence. It may be expressed in RMB or US dollars.
Minimum requirement of capital contributions
The minimum amount of registered capital of a limited liability company shall be RMB 30, 000 Yuan. (Article 26)
The minimum amount of registered capital of a one-person limited liability company shall be RMB 100, 000 Yuan. The shareholder shall, in a lump sum, pay the capital contribution as specified in the articles of association. (Article 59) The term “one-person limited liability company” refers to a limited liability company with only one natural person shareholder or a juridical person shareholder. (Article 58)
When to pay?
The amount of the initial capital contributions (首次出资额) made by all shareholders shall be not less than 20% of the registered capital, nor less than the statutory minimum amount of registered capital, and the margin shall be paid off by the shareholders within 2 years as of the day when the company is established; as for an investment company, it may be paid off within 5 years.
How to pay?
A shareholder may make capital contributions in currency, in kind or intellectual property right, land use right or other non-monetary properties.The value of the non-monetary properties as capital contributions shall be assessed and verified, which shall not be over-valued or under-valued. The amount of the capital contributions in currency paid by all the shareholders shall be not less than 30% of the registered capital of the limited liability company. (Article 27)
Every shareholder shall make full payment for the capital contribution it has subscribed to according to the articles of association. If a shareholder makes his/its capital contribution in currency, he shall deposit the full amount of such currency capital contribution into a temporary bank account opened for the limited liability company.
If the capital contributions are made in non-monetary properties, the appropriate transfer procedures for the property rights therein shall be followed according to law. (Article 28)
Capital contribution certificate (验资证明)
The capital contributions made by shareholders shall be checked by a lawfully established capital verification institution (验资机构), which shall issue a certification. (Article 29)
After the establishment of a limited liability company, every shareholder shall be issued with a capital contribution certificate, which shall specify the following: (1) the name of the company; (2) the date of establishment of the company; (3) the registered capital of the company; (4) the name of the shareholder, the amount of his capital contribution, and the day when the capital contribution is made; and (5) the serial number and date of issuance of the capital contribution certificate.
The capital contribution certificate shall bear the seal of the company (公司盖章). (Article 32)
Reduction of registered capital
Where a company finds it necessary to reduce its registered capital, it must work out balance sheets and checklists of properties. The company shall, within ten days as of the day when the decision of reducing registered capital, notify the creditors and make a public announcement on a newspaper within 30 days.
The creditors shall, within 30 days as of the receipt of a notice or within 45 days as of the issuance of the public announcement if it fails to receive a notice, be entitled to require the company to clear off its debts or to provide corresponding guarantees.
The registered capital of the company after reducing its registered capital shall not be any lower than the bottom line requirement as provided for by law. (Article 178)
Increase of registered capital
Where a limited liability company increases its registered capital, the capital contributions of the shareholders for the increased amount shall be subject to the relevant provisions of the present Law regarding the capital contributions for the establishment of a limited liability company. (Article 179)
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