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Has foreign invested company really relieved from minimum registered capital requirement?


27 June 2014
To coincide with the reform of the registered capital system, China's Ministry of Commerce issued on June 17, 2014 the Circular on Improving Administration of Foreign Investment Examination and Approval.
The Circular states that in respect of foreign invested companies, the requirements for minimum percentage of first installment of capital contribution, minimum percentage of capital contribution in cash, time limit for capital contribution are all cancelled; in addition, except for those engaged in certain specific industries, the minimum registered capital requirements for normal foreign invested companies are also cancelled. According to the Circular, the departments of commerce will no longer examine capital contribution status of foreign invested companies (except for those engaged in certain industries where the amount of paid-up capital are to be registered).
However, the Circular requires that the ratio between the total amount of investment of a foreign invested company and its registered capital shall still comply with the existing state regulations. In this regard, since currently the total amount of investment of a foreign invested company is ascertained by examination and approval authority based on the estimated scale of its operation and project, while the registered capital is required to keep the stipulated ratio with the total amount of investment, when the total amount of investment is ascertained, certain minimum amount of the registered capital shall accordingly be required. Namely, it seems impossible to have the minimum registered capital requirement really cancelled.
In addition, the Circular requires that the investors of the foreign invested companies shall decide at their discretion and specify in the relevant joint venture contract and articles of association each of the "amount of registered capital subscribed", "method of capital contribution", "time schedule of capital contribution", etc. and such items shall also be specified in the relevant approval document issued by the examination and approval authority. In this regard, since the joint venture contract and articles of association of a foreign invested company are subject to examination and approval by the examination and approval authority, if the authority believes that the amount of registered capital and the contribution schedule as decided by the investors "at their discretion" may not satisfy the fund requirement for the estimated operation and project to be carried out by the company, it seems still possible for the examination and approval authority not to grant approval for the relevant joint venture contract and articles of association, or to require adjustments thereto.
Therefore, it is nevertheless doubtable whether the above mentioned requirements are really cancelled and let's pay attention to how the Circular is to be implemented.

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Disclaimer
Any legal information contained in this newsletter is general in nature and laws and regulations are changing from time to time and compliance will always depend upon the particular circumstances. We have not attempted to give exhaustive descriptions of law or to give a legal opinion on specific legal issues. You should not rely on this newsletter as a legal advice for any particular purpose.

 

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