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Equity Finance in China
by David Carnes
Published on this site: November 29th, 2006 - See
more articles from this month
Minimum Investment and Capital Contribution Schedule
Minimum Capital Requirements
Chinese foreign investment law sets minimum Registered Capital
requirements at 30,000 RMB (about US$ 4,000) for LLCs, which
include Joint Ventures and Wholly Foreign Owned Enterprises (in
practice, higher amounts are generally needed to secure
approval), and minimum Registered Capital is RMB 5,000,000 (about US$600,000) for a Foreign Invested Company Limited by
Shares. Note that industry-specific regulations may raise these
requirements for certain types of businesses - in the insurance
and securities industries, for example, minimum Registered
Capital requirements are much higher.
Capital Contribution Schedule
There is currently a conflict between the Ministry of Commerce
(MOFCOM) and the State Administration of Industry & Commerce
(SAIC) as to which law is applicable in this area.
Saic's requirements:
20% of Registered Capital initially; remainder to be paid
within 2 years of the establishment date set forth on the FIE's
Business License
Mofcom's requirements:
Either 15% of the total Registered Capital, or an amount equal
to the minimum capital requirement (whichever is greater) must
be contributed within 90 days of the date that the FIE's
business license is issued.
The remainder must be contributed
according to the following schedule:
Total Registered CapitalFull Payment Deadline
Up to US$500,000 1 year from issuance of business
license
US$500,001 - US$1 million1.5 years from issuance of business
license
Over US$1 million to US$3 million2 years from issuance of
business license
Over US$3 million to US$10 million3 years from issuance of
business license
Over US$10 million Up to examination and approval authority
Lump sum payments must be made within 6 months of the issuance
of the fie's business license.
Industry-specific regulations may also modify the above
requirements. Both minimum investment and capital contribution
schedules are murky areas of Chinese foreign investment law,
with regulations that seem to either contradict or supplement
each other (no one can agree which), giving the authorities the effective ability to modify these requirements at will. The
safest approach, then, would be to comply with
industry-specific regulations and then look to the Company Law
where these regulations are silent.
David Carnes - is licensed to practice
law in
California. He speaks and reads Mandarin Chinese and has
several years experience working with Chinese law firms and
Sino-American joint ventures. His website, China Breezes, is at
http://www.lunaticwisdom.com/blog1.
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