The Company Law of the People’s Republic of China has undergone significant revisions, marking the sixth major update since its inception in 1993. The New Company Law, set to take effect on July 1, 2024, brings forth several critical changes, notably the overhaul of the registered capital system. With extensive consultation and discussions from various sectors, this law aims to ensure greater efficiency and fairness in company operations. This press release will focus on the changes to the registered capital system, which is poised to have a profound impact on investors, founders, and the broader business community.
One of the most notable updates in the New Company Law is the revision of the registered capital subscription system. Previously, companies could extend their capital contribution periods, sometimes to the disadvantage of creditors and stakeholders. Under the New Company Law, limited liability companies are now required to fully pay their subscribed capital within five years of establishment. This change addresses long-standing concerns about the security of transactions and aims to prevent capital delays that could compromise the integrity of businesses.
The law further refines shareholder responsibilities, introducing new provisions regarding capital contributions, shareholder qualifications, and the penalties for non-compliance. These adjustments are designed to enhance corporate governance and ensure that companies are adequately capitalized, which in turn, supports market stability.
The most impactful revision for founders and investors is the introduction of stricter timelines for capital contributions. Shareholders will be required to make their full capital contributions within five years, a change from the previous system, which allowed more extended periods. This will require companies to review their capital structures more carefully, ensuring that business objectives and capital requirements align from the outset.
For existing companies, the law introduces a transitional period to adjust the capital contribution timelines to meet the new regulations. This will help companies gradually align with the changes without disrupting their operations. Additionally, companies that have already registered but have extended capital contribution periods will need to make adjustments before the July 2027 deadline.
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