- In March 2014, the Chinese government made significant changes to PRC company law to reduce bureaucracy and boost growth. This is one of the most significant changes in the recent years, affecting the way companies are required to register their capital and investments into the PRC.
- Vistra (Amsterdam) B.V.
Details of the changes can be found in our March Newsletter. Since then, further amendments to the Company Law have changed the documentation requirements for companies.
There are implications for existing companies in China as well as for investors seeking to set up a permanent establishment in China.
Implications for existing companies
1. Quicker approvals for capital contribution changes
Companies are now allowed greater autonomy in deciding the amount and timing of capital contributions. Existing companies will still have to stick to the capital contribution schedule set out in the Articles of Association (AOA) of the company, however, adjustments of the schedule no longer require a lengthy official approval process.
2. Documentation compliance
The requirement to record the amount of registered capital contributions on the business license has been removed and, as a result, business licenses themselves have changed.
The old business license will be phased out after 28 February 2015 and all companies must renew their business license in compliance to the new PRC Company Law.
Implications for new companies
1. Making informed capital investment decisions
Although the requirement to register a minimum amount of capital investment is removed, new companies are strongly recommended to make timely and realistic capital investments based on their operational needs as the applications process for additional capital contributions will take 1-2 months.
2. Capital verification requirements
Under Amendment (III), although new companies do not need to provide a certified capital verification report and update the Administration of Industry and Commerce (AIC) on their registered capital, other authorities such as banks still require a capital verification report from corporate clients. New companies setting up in China will therefore still have to file a capital verification report as part of the post-registration phase.
The changes to the PRC Company Law are significant and have a range of implications for investors. To ensure compliance and to make the most of new opportunities, investors are strongly advised to seek professional guidance.
For more information on the changes to the law, please refer to our March Newsletter. Vistra China will continue to monitor new developments as they occur and will provide updates accordingly.