On 1 July 2024, the same day when the new PRC Company Law came into force, the People's Republic of China ("PRC") State Council promulgated the Regulation on the Implementation of the Administrative System for the Registration of Registered Capital under the PRC Company Law (国务院关于实施《中华人民共和国公司法》注册资本登记管理制度的规定, "Regulation") to facilitate the implementation of the new PRC Company Law's requirements on registered capital.
This Regulation also came into force on 1 July 2024. Below is a summary of the key highlights of the Regulation.
- Three-Year Transition Period for Adjustment of Capital Contribution Period
According to the new PRC Company Law, the registered capital of a limited liability company must be paid in full within five years of its establishment, with the same rules applying to any increase in capital. According to the Regulation, companies incorporated before 30 June 2024 ("Existing Companies") shall change the capital contribution schedule to five years before 30 June 2027, if the remaining time period for their shareholders to contribute their subscribed registered capital is more than five years from 1 July 2027. The shareholders shall fully contribute their subscribed registered capital within the adjusted deadline. Effectively, this makes 30 June 2032 the deadline for the full capital contribution of companies incorporated before 30 June 2024.
- Deletion of Special Capital Reduction During Transition Period
Compared with the draft of the Regulation for public comments released by the PRC State Administration for Market Regulation on 6 February 2024 ("Draft Regulation"), it is noteworthy that the officially issued Regulation has removed the special capital reduction procedure in the Draft Regulation, which was deemed specifically designed for qualifying Existing Companies to reduce their registered capital during the transition period.
However, it is uncertain whether there will be the introduction of any special capital reduction procedure for Existing Companies during the transition period. For the time being, these companies may have to apply for the capital reduction procedure stipulated under the new PRC Company Law for their capital reduction needs.
Overall, the Regulation aims to enhance the regulation of capital contributions, ensure the authenticity and reasonableness of capital registration, and align with the broader goals of the new PRC Company Law.
