On August 28, the fifth meeting of the Standing Committee of the 14th National People’s Congress heard a report on the revision of the draft company law by Yuan Shuhong, deputy chairman of the Constitution and Law Committee of the National People’s Congress.

Some localities, departments, experts, scholars and the public have pointed out that since the amendment of the Company Law in 2014 to implement the registered capital subscription registration system and cancel the investment period, the minimum registered capital and the proportion of the first investment, it has facilitated the establishment of companies, stimulated entrepreneurial vitality, and the number of companies has increased rapidly. However, in practice, the shareholders’ subscription period is too long, which affects the security of the transaction and damages the interests of creditors. It is suggested that on the basis of summing up practical experience, the subscription registration system should be further improved to maintain capital enrichment and transaction security. In this regard, the third review draft of the revised draft adds the provisions on the subscription period of shareholders of a limited liability company, and makes it clear that the amount of capital subscribed by all shareholders shall be paid in full within five years from the date of establishment of the company in accordance with the provisions of the articles of association.

Based on content analysis, the future results are nothing more than the following two:

1. All newly registered companies must pay their registered capital in full within five years;

2. All registered but not paid in companies need to pay their registered capital in full within a certain time frame. This clause is the worst-case outcome and may not necessarily be implemented

Failure to fully pay the registered capital may result in the following penalties:

If the initiators or shareholders of a company make false capital contributions, fail to deliver or fail to deliver the monetary or non monetary assets as capital contributions on time, the company registration authority shall order correction and impose a fine of not less than 5% but not more than 15% of the false capital contributions.

According to the content of the Company Law, the main purpose is also to clear a large number of shell companies, which is beneficial for the market environment but not very friendly for a large number of small and micro enterprises.

Note: Currently, this regulation is still in the process of soliciting opinions and has not been determined 

Source: People’s Daily August 29, 2023