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Onshore RMB Contribution Made by Foreign Investors
According to the relevant laws and regulations in China, foreign investors should make their capital contribution to their foreign invested enterprises established in China in foreign exchange or offshore RMB, except for the circumstances explicitly stipulated by laws and regulations that onshore RMB can be used for capital contribution.
Acceleration of Shareholder’s Capital Contribution Obligation
The new Company Law of the PRC, which came into effect on 1 July 2024, for the first time clarifies in legislative form that the rules for the accelerated expiration of shareholders' capital contribution obligations may be applied when a company is under non-bankruptcy, non-dissolution, non-execution status.
Capital Reduction Rules under the New PRC Company Law
Substantive capital reduction refers to the substantial reduction of a company's registered capital and the reduced registered capital will be refunded to the shareholders or the shareholders will be exempted from the obligation to contribute capital or share payments. According to Article 224 of the Company Law of the PRC, substantive capital reduction shall be conducted in accordance with the following statutory procedures:
Introduction to China's Capital Account Settlement Management Policies
In order to better meet and facilitate the business and capital operation needs of domestic enterprises, the State Administration of Foreign Exchange has unified and standardized the management of the willing settlement and payment of foreign exchange income under capital accounts throughout the country.
Compensation Liability of Director and Senior Management
The revised Company Law of the PRC, which came into force on 1 July 2024, significantly increases the compliance obligations and legal liabilities of the directors, supervisors and senior management personnel. Below is a summary of the compensation liabilities of the directors, supervisors and senior management personnel under the Company Law for your easy reference.
Liabilities for Shareholder’s Insufficient Capital Contribution
The Company Law of the PRC, which came into effect on 1 July 2024, strengthens the supervision of shareholder’s capital contributions and explicitly specifies the legal liabilities and consequences arising from shareholder’s insufficient capital contribution. Insufficient capital contribution includes not paying capital contribution in full and on time, or the actual value of non-monetary assets served as capital contribution is significantly lower than the subscribed capital contribution.
New Registered Capital Rules under the Revised Company Law of the PRC
According to Article 47 and Article of 52 of the revised Company Law, the registered capital subscribed by all the shareholders of a limited liability company shall be fully contributed within 5 years upon incorporation of the company. If the shareholders fail to pay their subscribed registered capital within the prescribed time and grace period, they may lose the equity of the unpaid registered capital.
Capital Contribution Liabilities after Equity Transfer
The Company Law of the PRC, which came into effect on 1 July 2024, expressly stipulates the capital contribution liabilities of the transferor and transferee after equity transfer in a limited liability company.According to paragraph one of Article 88 of the Company Law, when a shareholder of a limited liability company transfers the subscribed equity that has not yet reached the deadline for capital contribution, the transferee shall firstly assume the obligation to make capital contribution.
LLC Organization Structure under New PRC Company Law
The organization structure of a limited liability company (LLC) includes shareholders’ meeting, board of directors, board of supervisors and manger. The new Company Law of the PRC which came into force on 1 July 2024 has made significant adjustments to the organization structure of LLC.
Reciprocal Enforcement of Judgments in Mainland and HK
After the Arrangement on Reciprocal Recognition and Enforcement of Judgments in Civil and Commercial Matters by the Courts of the Mainland and of the Hong Kong Special Administrative Region (HKSAR) came into force on 29 January 2024, effective civil and commercial judgments given by the Mainland and Hong Kong courts on or after 29 January 2024 may apply for reciprocal recognition and enforcement in accordance with the foregoing arrangement.