As response to the adverse worldwide economical situation, Chinese Government has started a reform of its corporate legislation.

The goals of such reform have been clearly highlighted in the Program of Reform of Registered Capital Contribution System issued on February 7th, 2014, and include the easing of the bureaucratic procedures and burden for investors that intend to establish new companies.

The Program further stress out the amendments that has been made to the PRC Company law, that will be effective from March 1st, 2014, and that can be summarized as follows:

  1. The new Art. 23 par. 2, together with the deletion of Art. 59, cancelled the minimum level of registered capital previously required to establish a limited liabilities company, that, until the end of February 2014, it was fixed at 30,000 CNY for a limited liability company with more than one shareholder, and 100,000 CNY for a limited liability company with a sole shareholder.
  2. Once established, in accordance with the amended Art. 26, in case of contribution of capital by installment, the 20% initial payment is not compulsory anymore. 
  3. Once established, a limited liability company’s Business License will not indicate the paid – in capital, but only the total amount of registered capital that shall be contributed by the shareholder(s): a practical effect of this amendment is that it will not be required anymore to re-issue the business license upon payment of additional installment of registered capital. 
  4. Further to above, the requirement of cash contribution to the registered capital of a Ltd. has been cancelled: in theory, from March 1st, next, it would be possible to contribute to 100% of the registered capital in goods, IPRs, know – how or other non cash type of contribution. 
  5. Finally, contrary to current requirement, the compulsory requirement of the capital verification report has been abrogated.

Of course, above amendment shall apply to company not subject to special laws or regulation, and we still have to verify whether and (in case) how will be implemented for foreign – invested enterprises.In addition to the above, on March 1st, 2014 a new Circular approved by the State Administration for Industry and Commerce on February 20th, last, will be effective: such circular stress out that from March 1st, next all limited liability company, joint stock company, foreign enterprises operating in China, individual proprietorship enterprises, and economic entities shall not carry out the currently compulsory annual inspection. 

We believe that above circular, together with the amended PRC Company Law, is just the first step on what we believe to be a new phase of reforms and procedural simplification of the legal discipline on corporate issues in China. Of course we will not only keep you updated on legal news, but we will also monitor their actual implementation by local authorities with special regards to foreign investments.
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