When I was registering a subsidiary for a German company in China, I asked my client, “What is the registered capital for the subsidiary?” In response, they asked me, “What is registered capital? Does it mean that we have to pay the money to the government?” I was surprised and realized that there was a need to discuss it.
1. What Is Company Registered Capital?
In the context of registering a company or subsidiary in China, the term “registered capital” refers to the capital amount that the company commits to having available for its operations and potential liabilities. This amount is not paid directly to the government but is instead used as a financial benchmark and assurance of the company’s stability and ability to fulfill its obligations.
2. Legal Requirements Regarding Registered Capital
Chinese law mandates that companies, including both domestic and foreign-invested enterprises, specify their registered capital when they are incorporated. The registered capital is recorded in the company’s business license.
3. Minimum Amount Requirement
Since the revision of company law in 2014, the minimum registered capital requirement has been abolished, except where otherwise specified by law. Theoretically speaking, you can register a company in China with 0 yuan.
4. Capital Contribution
Shareholders or investors in the company are required to contribute the registered capital they commit to during the agreed period. Based on the current effective company law, this registered capital does not necessarily need to be paid in a lump sum, and there is no mandated timeline for the investors to pay up the capital. They could decide to pay it over 30 years, 50 years, or even 100 years. However, this flexibility can make it challenging to hold shareholders accountable if the company incurs debt. Therefore, the draft revision of the company law is proposing that LLC shareholders shall pay up their contributions within 5 years of the company’s establishment. This contribution can be in the form of cash, assets, or other forms of investment. The contribution verification by a Chinese certified public accountant is not required by law most of the time.
Companies can apply to adjust their registered capital under certain conditions, such as increasing or decreasing it based on business needs. However, these changes are subject to regulatory approval and may involve specific procedures and documentation.
6. Setting Registered Capital
When a company sets its registered capital, it essentially indicates to the authorities and potential business partners that it has a certain amount of financial resources available to cover initial expenses, investments, and potential liabilities. This is an important step in establishing trust and credibility in the business environment.
To sum up, the registered capital is typically deposited into the company’s bank account. While it’s not paid to the government, it plays a crucial role in the company’s ability to conduct business and meet its obligations within China’s legal and regulatory framework.