On February 19, 2014, the State Council promulgated the Decision of the State Council on Repealing and Revising Certain Administrative Regulations. On February 20, 2014, the State Administration for Industry and Commerce (SAIC) issued the Decision of the SAIC on Amending Such Rules as the Implementing Rules for the Administrative Regulations of the PRC on the Registration of Enterprise Legal Persons, the Administrative Provisions on the Registration of Foreign-invested Partnership Enterprises, the Administrative Measures for the Registration of Sole Proprietorship Enterprises and the Administrative Measures for the Registration of Individually-owned Businesses and the Administrative Provisions on the Registration of the Registered Capital of Companies. In accordance with the State Council and SAIC’s new decisions, recently more than ten rules and regulations have been revised, including the Administrative Regulations of the PRC on Company Registration; five rules and regulations have been repealed, including the Administrative Measures for the Registration of Debt-for-Equity Swap of Companies promulgated by the SAIC on November 23, 2011. A list of the foregoing rules and regulations revised or repealed is attached hereto. These revisions have been effective as of March 1, 2014.
The revisions to the foregoing rules and regulations reflect changes in the Company Law of the PRC as revised on December 28, 2013. Below we summarize the key changes introduced by the new revisions:
Change from Paid-in Capital to Subscribed Capital
According to the newly promulgated Administrative Provisions on the Registration of the Registered Capital of Companies, the amount, the timing and form of capital contributions subscribed to by all the shareholders or promoters shall be stipulated in the Articles of Association of the company. Furthermore, the company shall periodically disclose the amount of capital contributions subscribed to by all the shareholders, the timing and form of capital contribution and the paid-in capital through a new enterprise credit information disclosure system.
Nevertheless, under current laws, administrative regulations and the decisions of the State Council, currently, the new system does not apply 27 industries such as banking financial institutions, securities companies, futures companies, fund management companies, insurance companies, special insurance agencies and insurance brokers, direct selling enterprises, foreign labor service cooperation enterprises, financing guarantee companies, companies limited by shares established by share offer, labor dispatch enterprises, pawnshops, insurance assets management companies and micro-financing companies.
Cancel Minimum Capital Threshold
Under the new regime, previous provisions on minimum registered capital(RMB30,000 for a limited liability company, RMB100,000 for a single shareholder limited liability company and RMB 5,000,000 for a joint stock limited company), the initial contribution proportions and the proportion of monetary contributions have been deleted. The new revisions impose no restriction on the initial contribution proportions of all shareholders (promoters) at the time of incorporation of companies, the proportion of monetary contributions, and the period to pay up contributions. Therefore, currently companies are no longer subject to minimum registered capital requirement, except for special industries as stipulated otherwise.
Clarify Administration of Registration of Capital Contribution Made with Equity and Debt-for-Equity Swap
As stipulated in the newly promulgated Administrative Provisions on the Registration of the Registered Capital of Companies, a shareholder or promoter may make contribution with its holdings of equity in a company set up within the territory of China, and the equity used for contribution shall have clear ownership, entail full power and functions, and be transferrable according to the law. Also, a creditor may convert the creditor's rights to which it is legally entitled in the companies established within the territory of China into company equity. Where creditor's rights are converted into company equity, the company concerned shall increase its registered capital. Simultaneously, the previous Administrative Measures for the Registration of Capital Contributions Made with Equity and Administrative Measures for the Registration of Debt-for-equity Swap of Companies shall be repealed, and the provisions in relation to the period for shareholders to pay up contributions and the maximum proportion of non-monetary contributions in the foregoing measures are no longer preserved.
Cancel Annual Inspections
There will be no annual inspections. Instead, a reporting and disclosure system is introduced. Companies and other enterprises legal person (including partnership enterprises, foreign invested partnership enterprises and sole proprietorship enterprises) shall submit the annual report for the previous year to the competent registration authority and publicize the same to the society through the enterprise credit information publicity system from January 1 through June 30 each year, and make them available to any entity and individual. Main contents of annual reports of enterprises shall include contributions of shareholders (promoters), changes in equity structure, operation of the company and changes of such officers as directors and managers of the company, with the concrete contents to be stipulated in future provisions promulgated by the State Council.
Changes in AIC Registration Items and Procedures
According to the new Administrative Provisions on the Registration of the Registered Capital of Companies and the revised Administrative Regulation on Company Registration, items for company registration no longer include the amount, time and form of contributions as subscribed and actually paid; where the first capital contribution made by a shareholder is non-monetary property, the documents proving that the formalities for transferring the property thereof have been transacted no longer need to be submitted; the verification certificate of capital contribution is no longer required when applying for the establishment of a company or alteration registration of registered capital, except for a company limited by shares established by public offering; as newly added, where a company increases its registered capital, an application for change of registration shall be filed within 30 days from the date of the resolution or decision on such change. The revised Implementing Rules for the Administrative Regulations on the Registration of Enterprise Legal Persons have deleted the provisions in relation to checking relevant registrable items and establishment criteria, and accordingly dilute the substantive examination of the submitted registration documents. Therefore, this reformation has simplified and made flexible the procedure of industry and commerce registration, both for establishment and alteration registration.
Changes to Registration Administration System of Foreign Invested Enterprises
The revised Administrative Regulation on Company Registration and the Implementing Rules for the Law on Wholly Foreign-owned Enterprises have respectively deleted the provisions that “the capital contribution made by shareholders of a foreign-invested limited liability company shall be contributed in full amount within 2 years as of the establishment of the company, among which, an investment company may contribute its capital in full amount within 5 years” and that “Foreign investors may contribute their capital in installments, provided that the final installment is made within three years of the date of issue of the enterprise business license. The first installment shall account for no less than 15% of the total amount of capital to be contributed by the foreign investor, and shall be contributed in full within 90 days of the date of issue of the wholly foreign-owned enterprise's business license”. The provision in the repealed Several Provisions on the Capital Contribution by Parties to the Sino-Foreign Joint Ventures that “Where the equity joint venture contract stipulates that capital shall be fully contributed in one go, the various joint venture parties shall pay up their contributions within 6 months since the day of issuance of the business license; where the joint venture contract stipulates that capital shall be paid up in installments, the first payment made by the various joint venture parties shall be no less than 15% of the respective capital contribution of each party and shall be paid within 3 months since the day of issuance the business license” is also no long in force. Under the new regime, a Sino-foreign equity joint venture, a Sino-foreign cooperative joint venture or a wholly foreign-owned enterprise may stipulate the total investment amount, subscribed capital contribution and time of capital contribution in its Article of Association. Where a foreign investor makes its capital contribution with certain industrial property or proprietary technology, the previous limitation that the amount at which such property or technology is valued shall not exceed 20% of the registered capital of the wholly foreign-owned enterprise concerned is repealed as well.
Further, the reformation fully implements electronic business licenses, and an electronic business license which has industrial and commercial registration information shall have the same legal force as a paper business license.
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