As we mentioned in previous articles：What Does Registered Capital Mean? the law does not specify a time limit for capital injection, and no longer requires submitting a financial report after the capital injection. However, it is not always better to declare more registered capital when submitting the company incorporation application with local AIC. So, what should we pay attention to?
According to relevant laws, the shareholders contributions could be currency, a tangible asset, intellectual property rights or land use rights, which can be valued and transferred in accordance with the law. After the establishment of the company, all the above-mentioned assets must be transferred to the name of the newly established company.
However, labor, franchise, the name and goodwill of a natural person may not be used as capital contribution. So, it is not permissible for some shareholders to contribute their “management of the new company”, because management is actually a kind of labor.
Of course, shareholders can also use their equity in other companies in China to contribute, but the ownership of the equity should be clear, transparent and should be transferred according to the law.
It is also important to note that the increase and decrease of registered capital must be subject to the consent of the shareholders representing more than two-thirds of the voting rights of the Company, and they must file the change of registered capital with local AIC and change the business license accordingly.
However, if the registered capital is to be reduced, it is necessary to comply with certain procedures, including notifying all creditors and making an announcement in local newspapers before filing with the local AIC. Because reducing registered capital means reducing a company’s ability to repay debt, it will have an impact on the interests of creditors.
So our suggestion is: don’t declare too much registered capital beyond the amount you are going to inject or the actual fund you have. It’s a wise move to do it step by step, because it’s comparatively easier to increase the registered capital once you have more fund. And it will save you from unnecessary risk at all.
Related provisions in Company Law of PRC
Article 177 Where it is necessary for a company
to reduce its registered capital, it shall prepare the balance sheet and a list
of property.
The company shall notify its creditors within ten days after the resolution on
the reduction of the registered capital is made, and shall publish an
announcement in newspapers within 30 days. The creditors shall, within 30 days
upon receipt of the written notice, or in the case of the failure to receive
the written notice, within 45 days after the public announcement, be entitled
to request the company to repay the debts or provide the corresponding
guaranty.
