Following the implementation of the new PRC Company Law on 1 July 2024, the State Administration of Market Regulation (“SAMR”) issued the “Implementation Measures on Management of Company Registration (Draft)” (“Draft Measures”) for public consultation. The Draft Measures provided additional guidance on various aspects of company registration in China, including capital contribution and timeline, removal of company personnel information from registration, etc. The Draft Measures apply to foreign-invested enterprises (“FIEs”) as well as local entities.
The key provisions of the Draft Measures to which foreign investors should pay particular attention are set forth below:-
1) Capital contribution timeline
Under the new PRC Company Law, companies must fully pay up their registered capital contribution within 5 years from the date of incorporation, and a 3-year transition period (from 1st July 2024 to 30th June 2027) is provided to companies to comply with the new requirement. For details of the capital contribution requirements, please refer to our previous newsletter “New PRC Company Law – An Overview of the Major Changes and their Effects on Foreign Investors” (Issue: 24-03).
The Draft Measures further supplement the capital contribution timeline as follows:
a) Limited liability companies (“LLC”) established before 1 July 2024:
- If the remaining subscription period calculated from 1 July 2027 (“Remaining Subscription Period”) exceeds 5 years, this has to be adjusted to a date before 30 June 2027;
- If the Remaining Subscription Period is less than 5 years, it is not necessary to make any adjustment.
b) Joint stock companies (“JSC”) established before 1 July 2024: the remaining subscribed capital must be paid up before 30 June 2027;
c) Increase in registered capital
- LLC: the increased capital must be fully paid within 5 years from the date of the registration of the increase;
- JSC: the increased capital must be fully paid before registration of the increase.
2) Capital Contribution timeline under special circumstances
According to the provisions on the Registered Capital Management System of the new PRC Company Law (“RCMS Provisions”), existing companies involved in national or major public interests may, upon recommendations of state or provincial authorities and with the approval of the SAMR, make capital contributions based on the original contribution period. In this regard, the Draft Measures clarified on situations whereby a company’s operations may involve “national or major public interests” such as those relating to major national strategies, the economy, and national security. It further clarified that this exception applies to FIEs.
3) Management of “abnormal” contribution periods and amounts
Where there are obvious abnormalities in the company’s contribution period and registered capital, the RCMS Provisions provide that the company registration authority may, after evaluating aspects such as a company’s business scope, operating conditions, shareholder contributions, main project, and asset scale under certain conditions, require the company to make appropriate adjustments.
The Draft Measures provided further clarification on the following circumstances whereby a company’s contribution period and registered capital would be considered obviously abnormal:
- Subscribed capital contribution period exceeding 30 years;
- Registered capital exceeding RMB 1 billion; and
- Other circumstances that violate the principle of authenticity and are not in line with objective common sense.
4) Business scope
The Draft Measures specifies that the business scope of FIEs and companies directly invested by FIEs shall comply with the negative list for market access as well as the special management measures for foreign investment access.
5) Management of registration of company personnel
a) Audit Committee
Under the new PRC Company Law, LLCs and JSCs can establish an audit committee within the board of directors and the requirement to appoint supervisor or a board of supervisors can be dispensed with. The Draft Measures provide that companies with an audit committee are required to maintain records of the directors who serve as members of that committee.
b) Listing of company liaison officers
The company liaison officer is responsible for communication between the company and the company registration authority, as well as the dissemination of relevant information to the public. This role is crucial but often overlooked in the registration process.
The Draft Measures clarified that the liaison officer may be a legal representative, shareholder, director, supervisor, senior manager, or employee. While the Draft Measures did not impose mandatory requirements on the identity of the liaison officer, it is suggested that the company registration authority generally prefers individuals closely affiliated with the company over third parties to ensure effective communication.
The liaison officer should maintain open lines of communication at all times. As such, it is particularly important for FIEs to select a liaison officer who is based in China and who can be easily reachable.
6) Removal of company personnel information
The Draft Measures established a new system for removing information related to terminated legal representatives, directors, supervisors, or senior managers from public registration records. Under this system, if a company does not comply with legal documents mandating the removal of internal personnel, the court will issue an enforcement notice to the company registration authority. The company registration authority is then obligated to assist in enforcement by removing the relevant personnel’s information from the registration records and publicly updating this removal on the National Enterprise Credit Information Publicity System.
Further, where a company’s shareholder has passed away, been deregistered, or removed, resulting in the company’s inability to deregister independently, the successor or investor of such shareholder may initiate the deregistration process on behalf of the company and to document the relevant circumstances in the resolution for deregistration.
7) Separate Management system
If a company fails to adjust its capital contribution period as required under the new PRC Company Law due to circumstances such as its business license being revoked, being subject to closure order, or being unreachable at its registered address and thus being included in the list of abnormal operations, resulting in the inability to adjust the capital contribution period before 30 June 2027 as required by the new PRC Company Law, then such company will be listed in a separate register by the company registration authority.
Companies listed in the separate register may apply to the company registration authority for the restoration of their registration status. The authority will review these applications and restore the status if the necessary conditions are met.
8) Social Credit Code system
Companies listed in the separate register will no longer be recognized as a registered entity. The company registration authority will replace its name with its unified social credit code (an 18-digit registration number) on the National Enterprise Credit Information Publicity System, while other information will be concealed.
The Draft Measures further clarified that a company can only have one unified social credit code. After the revocation or the cancellation of a company’s registration, the company registration authority will keep the unified social credit code for a long time in accordance with the regulations to ensure that it can be traced.
9) Simplified procedure through data sharing
When seeking registration for a business location, a company is required to submit evidence of its use of the premises. However, in the case where the existence and ownership or usage rights can be confirmed through data sharing between departments, the company registration authority may simplify the process and eliminate the need for supporting documents.
10) Strengthening the responsibility of intermediary agencies
It is common for companies to engage intermediary agencies for conducting registration and filing. To regulate these agencies and ensure the authenticity of company registrations, the Draft Measures proposed a new requirement for companies to submit details of the intermediary agency along with a Power of Attorney. Additionally, if an intermediary agency fraudulently impersonates another or submits false materials, the company registration authority may penalize the agency as well as its directly responsible supervisor, and other accountable individuals, thereby enhancing the agency’s accountability.
Conclusion
The Draft Measures include several provisions aimed at improving the registration and management of companies in China. It further refines the relevant provisions of the new PRC Company Law concerning the new capital contribution requirements. FIEs established before the implementation of the new PRC Company Law must ensure full payment of registered capital within the three-year transition period or amend their articles of association to adjust the capital contribution period. We’ll provide further updates on the Draft Measures for FIEs to keep abreast of any new requirements relating to corporate governance.
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