in the last blog We have explained about The company's "legal representative" in China Now let us explain the concept of “Registered capital” and related legal provisions

What does authorized capital mean for Chinese companies? Investors should consider the appropriate amount to avoid unnecessary risks.
According to the PRC Company Law, authorized capital is the fund that every shareholder contributes or promises to donate to a company upon application with the Local Administration of Industry and Commerce (“AIC”) for the establishment of a company. The registered capital of the company will be specified in the company's regulations. (which will be sent to the local AIC for evaluation) and the amount of registered capital will be specified in the company's business license as this is publicly available information.

In addition, if shareholders decide to increase or decrease the registered capital of the company. Changes in registered capital must be submitted to the local AIC and business licenses will also be changed accordingly.

Generally, a company's registered capital indicates the strength or ability of the company's funds to a certain extent. It can serve as a reference for other companies to choose their cooperation partners. or for the bank to decide whether to apply or not The loan will not be given.

And for some industries there are minimum authorized capital requirements before a company can enter the sector. For example, if you want to set up a temporary employment agency, The registered capital must be at least 2 million yuan. The registered capital will be used to provide qualifications in certain sectors and as an evaluation standard in project bidding.

However, this does not mean that the more shareholders' declared registered capital, the better. Although there is currently no time limit for capital injections and no requirements for monitoring capital injections, why? Because social capital does not only refer to a company's capabilities. But it also includes public liability. especially towards creditors

For example, if a company claims to have a registered capital of 1 million yuan, it is expected to be responsible for up to 1 million yuan of its debts, even if shareholders inject only 50,000 yuan.

and vice versa Registered capital is only one standard for evaluating a company's potential. Because it is often found that some companies have really large registered capital. And then there are no assets at all. Therefore, it should be understood that it is better to specify the registered capital according to the actual capabilities and financial situation of the company, otherwise shareholders will face unexpected risks.

Relevant provisions in the PRC Company Law:

Article 26 The registered capital of a limited company is the amount subscribed by all shareholders as registered with the relevant company registration agency.
To apply the provisions of the law Administrative regulations and the State Council's decision otherwise stipulating regarding the actual payment of registered capital and the minimum registered capital of limited liability companies shall be effective.

Section 198 in the case of violation of this law Companies registered by falsely declaring registered capital Submitting false objects or conceal material facts by other fraudulent means, the relevant company registration agency must order correction. If the company declares capital that is false. A fine of not less than five percent but not more than 15 percent of the falsely declared capital must be paid. If the company submits false content or fraudulently conceals important facts. A fine of not less than 50,000 Yuan but not more than 500,000 Yuan will be levied under serious circumstances. The company's registration will be canceled or its business license will be revoked.

https://www.msadvisory.com/china-registered-capital/