China clarifies capital contribution requirements under company law

China’s company law was amended in late 2023 with the changes taking effect from 1 July 2024. The new law, among other things, imposes certain restrictions on the subscription of registered capital of a limited liability company (LLC). Article 47 requires that "the amount of capital contribution subscribed by all shareholders shall be paid in full by the shareholders within five years from the date of establishment of the company in accordance with the provisions of the articles of association".

On 20 December 2024, the State Administration for Market Regulation of China published new measures to address issues that have been unclear since the new company law took effect. The implementation measures provide important clarifications around the capital contribution requirements and come into effect on 10 February 2025.

Forms of capital contribution

Regarding methods of contribution, article 6 of the implementation measures states that shareholders can contribute capital using various forms of assets, including cash, in kind, intellectual property rights, land use rights, equity, and debt claims. These assets must be legally transferable and can be valued in monetary terms. Non-monetary assets must be appraised and verified to ensure that their value is neither overestimated nor underestimated. Notably, the implementation measures, for the first time, clarify that a shareholder may use data and virtual assets as capital contribution, provided that there are laws that recognise the ownership of such data and virtual assets.

Disclosure requirement

Article 11 of the implementation measures further indicates that if an LLC adjusts its amount of capital subscribed or paid-in by shareholders, the method of capital contribution, or the contribution period, or if a joint-stock company adjusts its number of shares subscribed for by the promoters, it must disclose that information to the public through the National Enterprise Credit Information Publicity System (‘the System’) within 20 working days from the date when the relevant information arises.

Clarifications on the calculation of the capital contribution period

Regarding the five years contribution period specified in the revised company law, article 7 and article 8 of the implementation measures provide some clarifications.

Initial registered capital for LLCs

For LLCs registered before 30 June 2024, if the remaining period for paying the subscribed capital contributions exceeds five years from 1 July 2027, this period must be adjusted to be within five years. That adjustment must be made before 30 June 2027 and recorded in the company's articles of association. Shareholders must pay the full amount of the subscribed capital contributions within the adjusted period.

If the remaining period for paying the subscribed capital contributions is less than five years from 1 July 2027, or if the registered capital has been fully paid, there is no need to adjust the capital contribution period.

Subsequent capital increases for LLCs

If an LLC increases its registered capital, the shareholders must fully pay the increased capital within five years from the date of registration of the change in registered capital.

Initial registered capital for joint-stock companies

The promoters or shareholders of joint-stock companies registered before 30 June 2024 must pay the full amount of share capital for the shares they have subscribed for before 30 June 2027.

Subsequent capital increases for joint-stock companies

If a joint-stock company increases its registered capital, it must undergo registration of the change in registered capital after the shareholders have fully paid the share capital.

Capital contribution adjustment for specific companies

Article 9 of the implementation measures further provides that companies registered before 30 June 2024 whose production and operation involve national interests or major public interests, may make capital contributions according to the contribution period determined before 30 June 2024, subject to the approval of relevant authorities.

In addition, article 10 provides that,  in respect of companies registered before 30 June 2024, the competent registration authority will, under certain circumstances – for example, the period for paying the subscribed capital contribution exceeds 30 years or the registered capital exceeds CNY 10 billion – scrutinise and determine the authenticity and reasonableness of their contribution period and registered capital, based on the company’s business scope, operation status, shareholder’s ability to make contributions, primary business activities, and asset scale, among other factors. In the event of an apparent abnormality, timely adjustments will be required.

Consequences of non-compliance

Article 24 of the implementation measures outlines the consequences for companies that fail to comply with the contribution period and registered capital requirements.

Companies registered for establishment before 30 June 2024 whose contribution period and registered capital cannot be adjusted due to reasons such as business licenses revocation, being ordered to shut down or dissolve, or being included in a list of companies with abnormal operations due to the inability to reach them at the registered domicile or place of business, will be placed under separate administration. The company registration authority will make a special notation in its records in the System and disclose the information to the public.

Companies placed under separate administration will no longer be included in statistics and administration as active registered companies. If these companies adjust their contribution period and register in accordance with the law, their active registration status will be restored.

Actions for businesses

Companies registered for establishment in China before 30 June 2024 must take actions promptly to adjust their remaining contribution period to be within five years by 30 June 2027. The shareholders must pay the full amount of the increased capital within five years from the date of registration of the change in registered capital when a company wishes to increase its registered capital.

If a shareholder intends to use data or other virtual assets as capital contribution, they will need to assess whether the ownership of that data or those assets is recognisable under the relevant laws.