China Company Law and the 5-Year Registered Capital Deadline

What are the key changes to China's Company Law on registered capital from July 2024?

The 2023 revision of the PRC Company Law, effective 1 July 2024, reintroduces a strict time limit: shareholders of a limited liability company must fully pay in their registered capital within 5 years of establishment. The reform abolishes the old practice of setting very long or symbolic contribution periods, and it strengthens personal liability of shareholders and management for unpaid capital. Implementing rules issued by the State Council and SAMR provide transition arrangements and enforcement mechanisms.

Main legal changes you need to understand

• 5-year maximum contribution period
  • New limited liability companies established on or after 1 July 2024 must set a capital contribution period of no more than 5 years in their Articles of Association.
  • Shareholders must complete all capital contributions (cash and in-kind) within that period.
• Stricter registered capital registration
  • The business license and SAMR records now more clearly distinguish:
    • Registered capital (agreed contribution amount); and
    • Paid-in capital (actually contributed amount).
  • Authorities can cross-check capital data with bank, tax, and social credit systems.
• Expanded personal liability
  • Creditors may pursue shareholders directly for:
    • Unpaid or late-paid capital; and
    • Capital contributions made in a false or inflated manner.
  • Directors, supervisors, and senior management may bear joint liability if they:
    • Fail to verify capital contributions; or
    • Approve unlawful capital withdrawals or illegal distributions.
• More robust exit and liquidation rules
  • Liquidation committees must check whether capital has been fully and properly paid.
  • Unpaid capital and illegal returns of capital can be clawed back to satisfy creditors.
• Coverage of foreign-invested enterprises
  • Most foreign-invested limited liability companies are subject to the same registered capital rules as domestic companies.
  • Sectoral restrictions and special approval requirements (e.g. in finance, telecoms) still apply on top of the Company Law.

Old system vs new system at a glance

How long is the transition period for existing Chinese companies to adjust their registered capital?

Existing companies generally have up to 3 years from 1 July 2024 to adjust their Articles of Association and registered capital contribution schedules, and their remaining unpaid capital must typically be fully paid within 5 years from that date. Exact deadlines and procedures may vary by company type, industry, and local SAMR practice, so you should confirm with the competent market regulation bureau.

Core transition framework for existing companies

For companies established before 1 July 2024, the transition regime broadly works as follows (based on the 2023 Company Law transition provisions and State Council implementation rules as of late 2024):

• 3-year adjustment window
  • Existing companies whose remaining capital contribution period exceeds the new limits must adjust their Articles and registered records within 3 years from 1 July 2024 (i.e. broadly by mid-2027).
  • Adjustment is done via shareholder resolutions and registration with the local SAMR branch.
• 5-year cap on remaining period
  • For unpaid capital as of 1 July 2024, the remaining time for payment will usually be capped at 5 years from that date (i.e. roughly to mid-2029).
  • Companies may choose an earlier date if it fits commercial needs or regulatory expectations.
• Existing deadlines earlier than the cap
  • If your current Articles already require payment before the end of the transition cap, those earlier deadlines still bind your shareholders.
  • You cannot unilaterally extend an earlier agreed deadline beyond what the new framework allows without regulatory approval.
• Industry-specific rules
  • Financial institutions and certain regulated industries may have special transition rules issued by their sector regulators (e.g. PBOC, CBIRC, CSRC).
  • Always check whether there are industry notices, local SAMR guidelines, or free trade zone (FTZ) rules that modify the general schedule.

Practical steps during the transition period

1. Map your capital commitments
   • List each shareholder, their subscribed capital, amount already paid, and the scheduled due dates.
   • Identify tranches scheduled after the likely new cap date (for example, later than mid-2029).
2. Run funding and solvency checks
   • Assess whether each shareholder can realistically fund its remaining obligations within the new time frame.
   • Stress test against business projections, financing possibilities, and potential exit plans.
3. Decide your adjustment strategy
   • Option A: Keep current registered capital and accelerate payment into the shorter period.
   • Option B: Reduce registered capital to an amount that shareholders can fund and that still satisfies business and regulatory expectations.
4. Prepare corporate approvals
   • Draft amendments to the Articles to adjust:
     • Registered capital amount (if reducing); and
     • Contribution schedule so that remaining obligations fall within the new limit.
   • Convene shareholders' meeting or obtain written resolutions.
5. File with SAMR
   • Submit revised Articles, shareholder resolutions, and any supporting documents required by the local SAMR office.
   • Update other registrations triggered by the change (tax, foreign exchange, finance bureau, etc.).

What must new companies in China do to comply with the 5-year capital contribution rule?

New companies incorporated on or after 1 July 2024 must set a capital contribution schedule that ensures all registered capital is paid within 5 years, and they must document that schedule in the Articles of Association and incorporation filings. They should also match the registered capital level to realistic funding capacity and business needs to avoid later capital reduction procedures or shareholder liability issues.

Key planning decisions for new entities

• Choose a realistic registered capital amount
  • Registered capital should cover:
    • 3-5 year operating needs; and
    • Regulatory minimums (especially in licensing or capital-intensive sectors).
  • Avoid inflating registered capital to signal size if you cannot fund it within 5 years.
• Allocate contributions among shareholders
  • Decide each shareholder's capital share and contribution form:
    • Cash; or
    • In-kind contributions (IP, equipment, land use rights, etc.), which must be valued and verified.
  • Ensure each shareholder's funding plan aligns with its internal approvals and foreign exchange rules (for overseas parents).
• Design the contribution schedule
  • Set clear milestones: for example, 30 percent upon establishment, 40 percent within 2 years, balance by year 5.
  • Align capital injections with major spending events (leases, equipment purchases, hiring ramp-ups).

Step-by-step incorporation process under the new rules

1. Pre-approval and name reservation
   • Apply to the local SAMR (via the online system in many cities) to reserve the company name.
   • Check whether your business scope requires prior licensing or filing (e.g. food, internet, education).
2. Draft Articles of Association
   • Include:
     • Total registered capital;
     • Shareholder list and contribution amounts;
     • Forms of contribution (cash, IP, assets); and
     • Contribution deadlines not exceeding 5 years from establishment.
   • Make sure the capital clause is consistent across Chinese and any bilingual versions.
3. Submit incorporation filing to SAMR
   • Provide:
     • Application form;
     • Articles of Association;
     • Identity documents of shareholders and legal representative;
     • Lease or title certificate for the registered address; and
     • Other local documents (e.g. commitment letters, online declarations).
   • In many cities, government registration fees are low or zero, but service and agency fees vary.
4. Obtain business license
   • Once SAMR approves, you receive a Unified Social Credit Code and business license showing your registered capital.
5. Make initial capital contributions
   • Open a capital account with a bank.
   • For foreign investors, complete foreign exchange registrations (via the bank or SAFE system).
   • Inject the first tranche of capital as per the Articles and keep bank slips and verification records.
6. Maintain capital compliance
   • Track upcoming contribution deadlines and board approvals for each capital injection.
   • Ensure no illegal withdrawal of capital (e.g. sham loans, circular transfers) after contribution.

Typical cost items for setting up a company (indicative)

How can an existing company legally reduce registered capital in China if shareholders cannot pay in full?

If shareholders cannot realistically fund the full registered capital under the new deadlines, the company may reduce its registered capital by following statutory reduction procedures and obtaining SAMR approval. Done properly, this limits future payment obligations and reduces shareholder exposure, but it must respect creditor rights and comply with tax and regulatory consequences.

When capital reduction is a viable solution

• Funding constraint
  • Shareholders cannot or will not inject the originally subscribed capital within the new time frame.
• Business downsizing or pivot
  • The planned scale of operations has reduced, and the original capital no longer matches the business model.
• Regulatory fit
  • The company does not fall into a sector that requires high regulatory minimum capital that would block a reduction.

Standard capital reduction procedure

1. Internal assessment and plan
   • Confirm that after reduction, the company will still meet:
     • Legal minimum capital (if any); and
     • Licensing or industry capital requirements.
   • Model post-reduction financial ratios and solvency to withstand regulatory scrutiny.
2. Shareholders' resolution
   • Convene a shareholders' meeting to approve:
     • Specific amount of capital reduction;
     • Corresponding changes to shareholding structure (if any); and
     • Amendments to the Articles of Association.
   • Observe quorum and voting thresholds in the existing Articles and the Company Law.
3. Creditor notification and public announcement
   • Notify known creditors individually within the statutory period (commonly within 10 days of the resolution).
   • Publish an announcement in a designated medium or SAMR online platform within the statutory period (commonly within 30 days).
   • Allow creditors to demand early repayment or adequate security if they object.
4. SAMR filing for capital reduction
   • Submit:
     • Application form;
     • Shareholders' resolution;
     • Amended Articles;
     • Proof of announcements and creditor notices; and
     • Any other documents required by the local SAMR office.
   • Upon approval, SAMR issues an updated business license showing the reduced capital.
5. Update related registrations
   • For FIEs, update records with:
     • MOFCOM / commerce departments (if still required locally); and
     • SAFE / bank foreign exchange systems.
   • Update tax and statistics registrations if necessary.

Simplified capital reduction scenarios

The revised Company Law allows certain "simplified" capital reductions with lighter procedures when creditor risk is low, for example:

• Using accumulated profits or capital surplus to cover losses and adjust registered capital without returning capital to shareholders; or
• Restructuring internal capital accounts that do not reduce the company's actual ability to repay creditors.

However, the availability and exact documentation of simplified procedures vary by jurisdiction and SAMR practice, so you should confirm locally before relying on a fast-track approach.

Impact on shareholder obligations

• After a valid capital reduction, shareholders' remaining capital obligations are only for the new, lower registered capital.
• If a shareholder already over-contributed relative to the new capital level, careful structuring is needed to avoid being treated as an illegal return of capital when adjusting shareholdings or making distributions.
• Regulators may scrutinize reductions that happen shortly before insolvency or major creditor disputes, and they can challenge or unwind them in extreme cases.

What is the new shareholder liability for unpaid registered capital and how can creditors sue?

Under the amended Company Law, creditors can directly sue shareholders for unpaid, late, or falsely paid-in capital up to the shortfall amount, particularly when the company cannot satisfy its debts. This sharply increases personal financial exposure for shareholders who delay or avoid their capital obligations.

Key liability rules for shareholders

• Unpaid or underpaid capital
  • If a shareholder fails to pay its subscribed capital on time or in full:
    • The shareholder remains liable to the company for the shortfall; and
    • When the company cannot pay its debts, creditors can claim directly against that shareholder up to the unpaid amount.
• False contributions and inflated valuations
  • If a shareholder:
    • Makes a sham capital contribution (e.g. a temporary circular bank transfer); or
    • Overvalues in-kind contributions substantially above fair value,
  • then the shareholder can be ordered to make up the difference, and creditors can pursue that obligation in addition to claims against the company.
• Illegal withdrawal of capital
  • If a shareholder secretly withdraws contributed capital (for example through related-party transactions without substance),
  • the shareholder can be ordered to return the withdrawn funds, and creditors can seek recovery within that amount.

Liability of directors and senior management

• Failure to verify contributions
  • Directors and senior managers must verify and supervise capital contributions.
  • If they knowingly accept false capital contributions or fail to address obvious shortfalls, they can bear joint and several liability with the shareholders for creditor losses caused.
• Improper distributions
  • If the company distributes profits or capital in violation of law or Articles, and this causes creditor losses, responsible directors, supervisors, and managers can be held liable.

How creditors can enforce these rights in practice

1. Establish company default
   • Creditor obtains a judgment, arbitral award, or other enforceable instrument against the company.
   • Enforcement shows that company assets are insufficient to cover the claim.
2. Investigate capital status
   • Court or creditor checks SAMR records, financial statements, and bank information to see:
     • Registered capital vs paid-in capital; and
     • Actual contribution timelines.
3. File claims directly against shareholders
   • Creditor sues shareholders who:
     • Have not fully paid their capital; or
     • Made false or withdrawn contributions.
   • The court can order shareholders to pay up to their unpaid amounts to satisfy the creditor.
4. Pursue managers if warranted
   • Where evidence shows deliberate misconduct or gross negligence by directors or managers, creditors can add them as defendants for joint liability within the scope defined by the Company Law.

Risk management for shareholders

• Keep clear internal records of capital funding decisions, board approvals, and bank transfers.
• Avoid any arrangement that looks like capital in name but is intended to be immediately extracted.
• Monitor the company's overall solvency and avoid transactions that could be seen as prejudicing creditors (for example, asset stripping or selective repayments to related parties).

What practical compliance steps should Chinese companies and foreign investors take now?

Companies should run a structured review of their registered capital positions, decide whether to maintain or reduce capital, and then adjust Articles and funding plans to fit the new contribution deadlines. Foreign investors must also align these steps with group funding, treasury, and foreign exchange processes.

Core action checklist

1. Audit your capital status
   • Confirm for each China entity:
     • Current registered capital;
     • Paid-in capital (by tranche and date); and
     • Outstanding contribution obligations and timelines.
2. Re-forecast funding needs
   • Update 3-5 year business plans and budgets to determine realistic capital needs.
   • Compare this with existing registered capital and the new 5-year payment cap.
3. Decide entity-by-entity strategy
   • Healthy growth entities: keep or moderate capital, accelerate planned injections within 5 years.
   • Mature or shrinking entities: consider capital reduction to eliminate unfundable subscriptions.
   • Dormant or loss-making entities: consider liquidation or restructuring instead of forced capital injections.
4. Engage major shareholders
   • Discuss:
     • Their ability and willingness to fund within the new deadlines;
     • Potential dilution or transfer of equity if some cannot fund; and
     • Exit or buyout options for minority shareholders under stress.
5. Prepare and file corporate changes
   • Draft amended Articles and necessary resolutions.
   • Implement capital reduction, schedule adjustment, or liquidation as chosen.
   • Submit filings to SAMR and related authorities well before transition deadlines.
6. Integrate into internal controls
   • Update board reporting so that future contribution deadlines are tracked like loan maturities.
   • Include capital compliance in annual internal audits and external audit scopes.

When should you hire a China business lawyer or corporate expert?

You should involve a China-focused corporate lawyer or experienced advisor whenever your capital structure or transition plan is complex, contested, or touches on regulated sectors or cross-border funding. The new rules raise personal and corporate risk, so professional input is valuable whenever there is real money, multiple shareholders, or material creditor exposure at stake.

Situations where expert help is strongly recommended

• Large or cross-border shareholdings
  • Foreign parent companies, private equity funds, or multiple overseas shareholders.
  • Need to coordinate capital injections with group financing, tax planning, and foreign exchange compliance.
• Capital reduction, merger, or liquidation
  • Designing and implementing capital reductions that will withstand regulatory and creditor scrutiny.
  • Handling mergers, spin-offs, or liquidations where capital status critically affects creditor rights.
• Disagreements among shareholders
  • Some shareholders cannot or will not fund upcoming capital calls.
  • Need to negotiate dilution, share transfers, or buyouts under the new rules.
• Regulated or sensitive industries
  • Finance, insurance, securities, education, healthcare, telecoms, or internet businesses with special capital rules.
  • Operations in free trade zones or pilot zones with local variations.
• Risk of creditor disputes
  • Company is already facing payment difficulties, litigation, or enforcement.
  • Need to anticipate and manage creditor strategies that leverage shareholder liability for unpaid capital.

What a good advisor will typically deliver

• Clear mapping of your legal obligations and timelines under the new Company Law and local rules.
• Scenario analysis of options (pay, reduce, restructure, or exit) and their tax and enforcement implications.
• Drafting of Articles, resolutions, and filing documents tailored to the relevant SAMR practice.
• Coordination with tax, accounting, and FX banks to make implementation smooth and defensible.

What are the next steps to comply with China's new Company Law for registered capital?

The next steps are to inventory your entities, identify those affected by the new deadlines, and then decide for each whether to fund, reduce, or restructure their registered capital. Acting early gives you more flexibility, lowers legal risk, and avoids rushed decisions near the end of the transition period.

Immediate actions within the next 3-6 months

1. Create an entity and capital map
   • List all PRC companies under your group, their registered capital, paid-in amounts, and contribution schedules.
2. Flag high-risk entities
   • Entities with:
     • Very large unpaid capital vs realistic funding capacity;
     • Long contribution periods extending far beyond 5 years from 2024; or
     • Existing creditor or compliance issues.
3. Consult with local SAMR and advisors
   • Check local implementation rules, documentation requirements, and filing queues.
4. Adopt a board-level capital policy
   • Have the board formally approve a policy on:
     • Capital planning horizons;
     • When to use capital reductions vs new funding; and
     • How to monitor and report capital compliance.

Medium-term actions over the transition period

• Implement agreed capital injections and reductions according to a clear timeline.
• Keep an evidence trail of compliance: resolutions, bank records, filings, and regulator communications.
• Review your capital structure annually against business performance and any regulatory updates.

By treating registered capital as a managed financial obligation with clear deadlines, rather than a symbolic number on the business license, you can use the new Company Law framework to strengthen your China operations and reduce personal and corporate risk.