According to Company Law of PRC, registered capital is the fund all the shareholders contribute or promise to contribute to the company as they apply with local Administration of Industry and Commerce (“ AIC” ) for the incorporation of the company. They shall declare the company’s registered capital in the Articles of Association of the company (which shall be submitted to the local AIC for review) and the amount of the registered capital will be showed in the company’s business license, as it’s information open to the public.
Furthermore, if the shareholders decide to increase or reduce the registered capital of a company, they also have to file the change of registered capital with local AIC and their business license shall be changed accordingly.
Generally speaking, registered capital of a company shows the fund strength or capacity of a company to a certain extent, which could be used as a reference for other company to choose their cooperative partner or for the bank to evaluate if or not they will grant a loan application.
And for some industries, there is a minimum requirement for registered capital for the company to enter into this industry. For example, if you want to set up a labour dispatch company, the registered capital has to be at least 2 million RMB. Registered capital will also be used to grant qualification in some industries and also an evaluate standard in bidding for projects.
However, it doesn’t mean that the more registered capital the shareholder declare, the better. Though there is no time limit for fund injection and no requirement for an audit for fund injection now. Why so? Because registered capital means not only the capacity of the company but also the liability to the public, especially to creditors.
For example, if a company claimed they have 1 million RMB as registered capital, then they are expected to be responsible to their debt as much as 1 million RMB， even if the shareholder only injected 50 thousand RMB.
And in the other hand, registered capital is just one of the evaluation standards for judging a company’s capacity, as it’s often found that some companies with a huge registered capital have no asset at all. So it’s important to understand that it’s better to declare the registered capital as the actual capacity and financial situation of the company, otherwise, the shareholder will be exposed to some unexpected risk.