The State Council executive meeting chaired by Chinese Prime Minister Li Keqiang on October 25 revealed that China is going to push forward reforms within its company registration capital regime in order to reduce the cost for starting new businesses.

The executive meeting clarified five reformatory policies as follows:

1. Lower registered capital requirements for setting up a company
2. Decreased costs of incorporation
3. Easier registration principles
4. Increased administrative efficiency
5. Building an enterprise credit system

We outline each of these reformatory policies below.

Lower registered capital requirements for setting up a company

• The minimum registration capital of RMB30,000 for limited liability companies will be cancelled, as well as the RMB100,000 minimum for single shareholder companies and the RMB5 million minimum for joint stock companies.
• The ratio of the initial payment and the deadline for full payment of registered capital will be cancelled.
• The actual capital contributions of the company will no longer be a registration item for incorporation.

Decreased costs of incorporation

• Company registration based on actual capital contributions will be replaced by company registration based on subscribed capital contributions, which means it will be unnecessary to actually have the funds at the time of registration.
• The shareholders of the company (the founders) will decide on the amount, method, and deadline for subscription of contributions at their discretion, and will be responsible for the authenticity and legitimacy of the contribution.

Easier registration principles

• The requirements for “location of business” upon company registration will be lowered. Detailed enforcement is at the local government’s discretion.

Increased administrative efficiency

• Annual reporting by enterprises will substitute the current annual inspection regime. Enterprises should disclose relevant information to the public.
• A fair and regulated selective examination will be conducted by the government authorities to ensure the fairness and efficiency of the new regime.

Building an enterprise credit system

• A credit system will be vigorously promoted, and information such as business registration, annual reports, and qualifications should be presented as credit information of each entity in the credit system.
• Electronic business licenses and electronic registration management will be pushed forward.
• To raise the costs of being dishonest, entities could be put in a “black list” for violations of laws and regulations, and such violations will be made public through the credit system.

Although an implementation date has not yet been released, these five policies represent another big reformatory move made by the new cabinet of China as they attempt to establish a market with fair competition and a modern company registration regime with efficiency, transparency, and fairness.

It is still unclear how many of these policies will be applied to foreign invested enterprises. However, with the recent release of the “383 scheme” (which is the reformatory scheme produced by the brain trust of the State Council), there are indications that the country’s current leaders are also looking to implement easier market entry policies for foreign investors in the future.