The Impact of the New Company Law on German Enterprises' Investments in China
On December 29, 2023, the Standing Committee of the National People's Congress voted to adopt the newly revised "Company Law of the People's Republic of China" (hereinafter referred to as the “new Company Law"), which will come into effect on July 1, 2024.
One of the major changes in the new Company Law: A significant adjustment has been made to the payment deadline for the capital contribution subscribed by all shareholders. The capital contribution subscribed by all shareholders must be paid in full within five years from the company's date of incorporation in accordance with the provisions of the company's articles of association. Thus, shareholders must plan the investment period and amount sensibly. We recommend that the German parent company calculates in advance how much capital contribution it must provide and when all funds must be available.
For companies registered and established before the implementation of the new Company Law, if the capital contribution period exceeds the period specified in the new Company Law, and unless otherwise provided by law, administrative regulations or the State Council, the following applies: It shall be gradually adjusted to the period specified in the new Company Law. If the investment period or amount is obviously abnormal, the company registration authority may require timely adjustments to be made in accordance with the law. Specific implementation measures shall be stipulated by the State Council.
| Company Law 2018 1 | New Company Law 2023 2
| Adjustments |
| Art. 26 The registered capital of a limited liability company shall be the capital contribution subscribed by all shareholders registered with the company registration authority. If laws, administrative regulations and decisions of the State Council otherwise stipulate the paid-in registered capital and minimum registered capital of a limited liability company, such provisions shall prevail. | Art. 47 The registered capital of a limited liability company shall be the capital contribution subscribed by all shareholders registered with the company registration authority. The capital contribution subscribed by all shareholders shall be paid in full within five years from the date of establishment of the company in accordance with the provisions of the company's articles of association. If laws, administrative regulations and decisions of the State Council otherwise stipulate the paid-in registered capital of a limited liability company, the minimum amount of registered capital, and the period for shareholders' capital contribution, such provisions shall prevail. | Added the requirement that the registered capital must be paid in full within five years from the date of establishment of the company. |
Art. 28 Shareholders shall pay the capital contribution amount stipulated in the company's articles of association in full and on time. If a shareholder contributes capital in currency, the full amount of the monetary contribution shall be deposited into the limited liability company's bank account; if the shareholder contributes capital in non-monetary property, the transfer procedures for its property rights shall be completed in accordance with the law. If a shareholder fails to pay capital contributions in accordance with the provisions of the preceding paragraph, in addition to paying the company in full, he shall also bear liability for breach of contract to shareholders who have paid capital contributions in full and on time. Art. 30 After the establishment of a limited liability company, if it is found that the actual value of the non-monetary property used as capital contribution to establish the company is significantly lower than the value specified in the company's articles of association, the shareholder who made the capital contribution shall make up the difference; Other shareholders at the time of the establishment of the company bear joint and several liabilities. | Art. 49 Shareholders shall pay the capital contribution amount stipulated in the company's articles of association in full and on time. If a shareholder contributes capital in currency, the full amount of the monetary contribution shall be deposited into the limited liability company's bank account; if the shareholder contributes capital in non-monetary property, the transfer procedures for its property rights shall be completed in accordance with the law. If a shareholder fails to pay the capital contribution in full on time, in addition to paying the full amount to the company, he shall also be liable for compensation for the losses caused to the company. Art. 50 When a limited liability company is established, and if a shareholder fails to actually pay the capital contribution in accordance with the company's articles of association, or the actual value of the non-monetary property actually contributed is significantly lower than the amount of capital contribution subscribed, the other shareholders at the time of establishment and the shareholder shall bear joint and several liabilities within the scope of insufficient capital contribution. | It is clarified that shareholders shall be liable to the company for compensation if they fail to pay the registered capital in full on time. |
In summary, we recommend that companies check the capital contributions of shareholders to ensure that registered capital is paid in full and on time.
Author: Frank Yang (Lawyer), Fang Fang (Partner bdp China)
Translator: Sara Zimmermann (Senior Consultant), Fang Fang (Partner bdp China)
Footnotes
1《公司法》: 中华人民共和国公司法 2018年11月6日 全国人民代表大会
Company Law: Company Law of the PRC, 06.11.2018, National People's Congress
http://www.npc.gov.cn/zgrdw/npc/xinwen/2018-11/05/content_2065671.htm
2 新《公司法》: 中华人民共和国公司法 2023年12月29日 全国人民代表大会
New Company Law: Company Law of the PRC, 29.12.2023, National People's Congress
http://www.npc.gov.cn/npc/c2/c30834/202312/t20231229_433999.html