On March 1, 2014, China’s Company Law was amended to replace the paid-in registration system with the subscription system.
On September 1, 2023, the Standing Committee of the 14th National People’s Congress, after deliberation, issued the Company Law (Third Review Draft) (“Third Review Draft”), which made amendments to the contribution system.
Article 47 of the Third Review Draft provides that the registered capital of a limited liability company shall be the amount of capital contributions made by all shareholders registered with the company registration authority. The amount of capital contributed by all shareholders shall be paid in full by the shareholders within five years from the date of establishment of the company in accordance with the provisions of the articles of association.
Many people believe that this amendment makes the Company Law go directly back to the pre-2014 period, but we understand that there are still differences, specifically in the following aspects:
Firstly, the Third Review Draft only limits the contribution period to a maximum of five years for the limited liability company after establishment. The third Review Draft put forward five years of paid-in capital requirements. This is basically the same as the Company LAW (2005 Amendment), which required the shareholders of a company to pay registered capital within two years while the Third Review Draft proposes five years.
Secondly, paid-in or verified capital is still not required at the registration of the establishment of a limited liability company. The Company Law (2005 Amendment) requires twenty percent of the registered capital shall be paid and verified before applying for registration to the registration authority for the establishment of the company. The Third Review Draft does not propose the requirement of paid-in part of the registered capital or capital verification at the establishment of the company.
Thirdly, there is still no minimum registered capital requirement for the establishment of a limited liability company. The Company Law (as amended in 2005) requires the minimum registered capital of a limited liability company to be RMB 30,000 yuan. The Third Review Draft also does not make any restrictions on the amount of registered capital, theoretically “1 yuan” can be the registered capital of a limited liability company.
In view of the above three comparisons, we understand that the amendment by the Third Review Draft has not subverted the “Subscription System”, and that shareholders still have “zero threshold” in the establishment of a limited liability company. The Third Review Draft is essentially to regulate the behavior of a company during the period of continuous operation after the establishment of the company, and it is hoped that entrepreneurs will take into consideration their economic strength and the costs in the establishment of the company, and reasonably set the amount of registered capital and the period of payment, to implement the basic principle of “lenient entry and strict control”.