CHINESE UPDATE – Recent Changes to PRC Corporation Legislation
Highlights:
- On 28 February 2014, the State Council of the PRC issued Decision Regarding Revocation of and Amendments to Certain Administrative Regulations (国务院关于废止和修改部分行政法规的决定) (“Decision”) which came into force on 1 March 2014.
- The effect of the Decision has been to change the previous paid-up registered capital system for companies incorporated in China (including foreign investment enterprises) to a subscription-based capital system.
- For foreign investors in China, the new system will mean that they now have more flexibility in determining the capital structure of their investments in China.
- Among other things, the Decision has also removed the requirement for the annual examination of all PRC companies, replacing it with an annual report public inspection system.
Main Article:
RECENT CHANGES TO PRC COMPANY CORPORATION LEGISLATION
On 28 February 2014, the State Council of the PRC issued Decision Regarding Revocation of and Amendments to Certain Administrative Regulations (国务院关于废止和修改部分行政法规的决定) (“Decision”) which came into force on 1 March 2014.
The Decision revoked the following two regulations:
- Several Regulations Regarding Capital Contributions by Shareholders of Sino-foreign Equity Joint Ventures (中外合资经营企业合营各方出资的若干规定); and
- Supplemental Rules to Several Regulations Regarding Capital Contributions by Shareholders of Sino-foreign Equity Joint Venture (中外合资经营企业合营各方出资的若干规定〉的补充规定).
It also amended the following eight regulations:
- Company Registration Administration Rules (公司登记管理条例);
- Enterprise Legal Person Registration Administration Rules (企业法人登记管理条例);
- Detailed Regulations for Sino-foreign Equity Joint Ventures (中外合资经营企业法实施条例);
- Detailed Regulations for Sino-foreign Cooperative Joint Ventures (中外合作经营企业法实施细则);
- Detailed Regulations for Wholly Foreign Owned Enterprises (外资企业法实施细则);
- Registration Administration Rules for Partnership Enterprises (合伙企业登记管理办法);
- Regulations for Sole Proprietorship (个体工商户条例); and
- Registration Administration Rules for Farmer Special Cooperative Societies (农民专业合作社登记管理条例).
The combined effect of the above revocation and amendments on companies incorporated in China, including foreign investment enterprises (“FIE”), is summarised below.
Changes to Companies’ Capital Systems
| Subscription-based capital system | The paid-up registered capital system has been changed to a subscription-based capital system. The major changes in respect of this are as follows:
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| Foreign investors have greater flexibility |
Due to the above changes and amendments, foreign investors in China now have more flexibility in determining the capital structure of their investments in China. The terms regarding total investment, registered capital, subscribed amounts of capital, the mechanism of contribution, contribution timeline, shareholding transfer mechanism, etc. can be commercially agreed by and among the investors and set out in the articles of association of the FIE. One point that should be noted is that the requirement as to the leverage ratio between the total investment and registered capital of an FIE still applies. |
Other Changes to the Company Law Rules
| Annual examination requirement removed | The amendments have also removed the requirement for the annual examination of all PRC companies, replacing it with an annual report public inspection system. All PRC companies are required to file an annual report of the immediately preceding year between 1 January and 30 June to their respective registration authorities. The report will be made publicly available for inspection online by the general public. The detailed requirements and rules for such filings are still under development by the State Council. |
| Electronic searches and licences | Finally, the Decision also makes the following administrative changes:
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