Why you may need to change your registered capital
In our previous blog posts, we explained that, effective July 1, 2024, China’s Company Law was amended to introduce new rules on the payment of registered capital. For limited liability companies, shareholders must fully pay their subscribed capital within five years of the company’s establishment. For companies established before, the Articles of Association must be amended to shorten the remaining contribution period to within five years, and full payment must be completed by June 30, 2032. Following this change, companies with an excessively high subscribed amount that cannot be fully paid within five years often choose to reduce the subscribed capital to align with actual needs—one of the most common scenarios for capital reduction.
At the same time, as businesses expand, some companies may need to increase their registered capital—to strengthen the balance sheet, enhance creditworthiness, adjust the shareholder structure and ownership ratios, or qualify for business activities that have minimum registered-capital thresholds.
Decrease of Company’s Registered Capital
1. When you might need to decrease/reduce registered capital
For companies established before July 1, 2024, you may choose Hongda’s corporate registration information change service to extend the capital contribution timeline by five years. If you still cannot complete the payment of the registered capital within the required period, you will need to proceed with a capital reduction to avoid “overdue non-payment.”
Apart from situations where the company cannot complete its paid-in capital contribution on schedule, there are other circumstances in which a company may reduce its registered capital:
- Over-capitalization (capital surplus): If the company’s paid-in capital is disproportionately large relative to its actual business scale, idle funds may arise; a capital reduction helps resolve over-capitalization and improve capital efficiency.
- Equity monetization: In addition to transferring equity, shareholders can realize cash returns through a capital reduction.
- Shareholding structure adjustment: When a company undergoes a merger, division, or otherwise needs to adjust its shareholding structure, a capital reduction can be used to achieve the intended objectives.
- Fulfilling statutory obligations: In situations such as shareholder forfeiture of rights, buy-back of dissenting shareholders’ equity, or when company-acquired equity cannot be transferred outward within the required period, the law may require a capital reduction and cancellation of the relevant equity.
- Covering losses: If the company is facing losses, a capital reduction can be used to cover accumulated losses and thereby improve the company’s net assets.
2. How to process a reduction of Registered Captial
(1) Ordinary (standard) capital reduction
Ordinary capital reduction is the company’s standard procedural route for reducing registered capital. The process includes:
Step 1: Prepare a reduction plan
First, draft a complete plan specifying the post-reduction registered capital, the reduction method (e.g., pro-rata or directed), the target of the reduction, the post-reduction cap table, and creditor-protection arrangements. Submit the plan to the shareholders’ meeting for approval by resolution.
Step 2: Prepare a balance sheet and an asset inventory
Based on the company’s current financials, issue a balance sheet (showing total assets, total liabilities, and leverage ratio) and an asset inventory (listing the value and quantities of both intangible and tangible assets).
Step 3: Creditor notice and public announcement
Within 10 days after the shareholders’ resolution, notify known creditors in writing. Within 30 days, publish an announcement in a newspaper or on the National Enterprise Credit Information Publicity System (with a 45-day public notice/objection period).
Step 4: Company registration filing
If no objections arise during the notice period, file the capital reduction registration with the local Administration for Market Regulation (AMR/SAMR). Typical documents include the shareholders’ resolution, the amended Articles of Association (or amendment), and statements on debt repayment or provision of security, among others.
Step 5: Post-registration updates
After the change is registered, you will receive a new business license. Update details with your account-opening bank. For foreign-invested enterprises, also update your foreign-exchange registration (SAFE).
(2) Simplified capital reduction process
Compared with the ordinary procedure, the simplified route removes the requirements to individually notify creditors and to settle debts or provide security in favor of creditors. It applies when a company needs to reduce its registered capital to cover accumulated losses.
(3) Transition-period special capital reduction process
During the three-year transition period from 2024 to 2027, there is a special reduction route for legacy companies that only reduce subscribed (unpaid) capital without touching paid-in capital. This route offers a 20 working days public-disclosure “fast track,” provided that you meet the following conditions:
- No outstanding debts or other abnormal circumstances;
- All shareholders undertake joint and several liability for pre-reduction debts within the original subscribed amount;
- All directors undertake that the reduction will not impair the company’s debt-servicing capacity or its ability to continue as a going concern.
Increase of Company’s Registered Capital
1. When you might need to increase registered capital
As your business grows and new needs arise, you may decide to raise additional funds by increasing the company’s registered capital. Typical situations include:
- Initial budget shortfall or tight cash flow
- Qualification or business expansion needs (e.g., bidding, expanding business scope, obtaining licenses)
- Optimizing the company’s financing structure
- Building market image and creditworthiness
Note: any capital newly subscribed through an increase must be fully paid within five years.
2. How to process a capital increase
Step 1: Prepare a capital increase plan
Specify the investor(s), total increase amount, form of contribution (e.g., cash, tangible assets, or intangible assets), whether new shareholders will be introduced, and the payment schedule. The plan needs to bediscussed and approved by the shareholders’ meeting.
Step 2: Company registration filing
Within 30 days of the resolution, submit the capital change registration to the Administration for Market Regulation (AMR/SAMR) at the company’s place of registration and obtain a new business license.
Step 3: Pay in the registered capital
Apply to your bank to open a dedicated capital account to receive the capital injection, and complete the payment within the timeframe set out in the Articles of Association.
Step 4: Subsequent updates and disclosures
If the capital increase is intended to meet qualification or license thresholds (for example, in financial or other regulated industries with minimum registered capital requirements), update or re-obtain the relevant approvals in line with the competent authority’s rules, and complete the corresponding information changes and public disclosure/filing procedures.