China Updates- Company Laws

At the same time as Hong Kong is implementing its reform of its companies law, China has announced simplification of its company rules. 

The main proposed changes include:

• Removal of minimum registered capital requirements
• No required schedule for payment of full share capital,or proportion for the initial paid-in capital
• Relaxation of registration address requirements (Details unclear.)
• Cancellation of annual inspection and replacement with an annual reporting system
• Online access to company information such as registration and annual reports

The above proposals reflect the trend to continuing improvement of ease of doing business in China, such as the recent easing of company registration procedures in Shenzhen and in the new Shanghai Free Trade Zone. However, they are only proposals at this stage.

Key to foreign investors is the fact that it is not specified whether the proposals will apply to foreign-invested enterprises ("FIEs") or just to domestic companies. At present, the law on FIEs is distinct from that for domestic companies and includes rules for "total investment" for FIEs, i.e. share capital plus debt. The minimum amount of registered capital varies according to the "total investment" at any point in time.If the proposals are to apply to FIEs, then FIEs' registered capital should no longer be subject to a minimum, and nor, logically, should the "total investment" (and thus its borrowing capacity) be.

These factors in turn (currently) determine who (which level of government) needs to approve the foreign investment proposal.

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