Navigating the Amendments to the PRC Company Law: Key Points to Consider

PRC Company Law Amendments Bring Clarity to Registered Capital Contribution Issues

In a recent development, the State Administration for Market Regulation (SAMR) issued a consultation draft of the Provisions of the State Council on the Implementation of the Registration and Administration System of Registered Capital under the PRC Company Law. This draft, open for public consultation until March 5, 2024, aims to provide clarity on various issues surrounding the contribution of Registered Capital following the introduction of amendments to the PRC Company Law.

One of the key aspects addressed in the Draft Implementation Provisions is the transition period for existing companies to adjust their contribution schedules in line with the new requirements. Shareholders have been given a three-year transition period from July 1, 2024, to June 30, 2027, to review and adjust their contribution schedules if needed. Failure to make adjustments within this period may result in orders from the SAMR for correction within 90 days.

Additionally, the Draft Implementation Provisions introduce a simplified procedure for capital reduction during the transition period, aimed at companies with large registered capital that need to reduce it under the New Company Law. This simplified procedure includes requirements such as shareholders undertaking joint and several liability for the company’s debts before the reduction, and directors ensuring the company’s ability to pay debts and continue as a going concern.

Furthermore, the Draft Implementation Provisions outline the power of the SAMR in ordering adjustments to registered capital if deemed abnormal, such as in cases where the contribution period exceeds 30 years or the amount is more than RMB1,000 million. The SAMR may also refuse to register a new company if the proposed capital is unrealistic or inconsistent with relevant laws and regulations.

It is important for investors and companies to be aware of these amendments and the implications they may have on their operations. Shareholders may face ongoing liability in certain circumstances, and careful consideration must be given to factors such as debt obligations and business expansion plans.

As the Draft Implementation Provisions are still at the public consultation stage, further updates are expected to provide more clarity on these issues. Stay tuned for more information on how these amendments may impact companies and investors in the future.