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WFOE Registered Capital Adjustment

When doing business in China, you may need to adjust your registered capital. Follow Hongda for a detailed guide on how to do it right!

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).

Process of decreasing registered capital

(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. 

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Quick Processing

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We will provide the most suitable business proposal based on your own case.

Trackable Process

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Frequently Asked Questions

Still have a question? No worries! We are glad to answer!

Do we have to notify every creditor individually for a capital reduction?

For the standard reduction procedure, yes. You must notify known creditors in writing within 10 days of the shareholders’ resolution, and publish a public announcement within 30 days (e.g., in a newspaper or on the National Enterprise Credit Information Publicity System). Creditors who do not receive individual notice may, within 45 days from the announcement, demand repayment or the provision of security.

For a simplified reduction, you do not need to notify each creditor individually, but you must still make a public announcement; at the same time, the company may not make distributions to shareholders or waive any unpaid capital contributions.

During the transition period, can I just adjust the contribution schedule without reducing capital?

Yes. Under the new rules, for companies established before 2024-06-30 whose remaining subscription period would exceed five years from 2027-07-01, you must, by 2027-06-30, amend the Articles to shorten the remaining period to within five years. Shareholders must then pay in full within the adjusted period. Whether you also need a reduction depends on whether you can complete payment within the new timeline.

Can capital reduction proceeds be remitted overseas directly?

Yes, but subject to conditions. Funds received by foreign shareholders from a liquidation/reduction can be remitted under the capital account after completing the capital account information registration at the bank and passing document checks. Amounts corresponding to profits/reserves should be handled as dividends and are subject to the applicable withholding/individual income tax treatment.

Can a shareholder exit the company through a capital reduction?

Yes. This is commonly referred to as a directed (non-pro-rata) reduction / buy-back, where the company reduces only the specific shareholder’s contribution and cancels the corresponding registered capital so that the shareholder exits. Because this is an exception to the general pro-rata principle, it typically requires unanimous consent of all shareholders (or a specific legal circumstance allowing the buy-back), and strict compliance with public announcement and creditor-protection procedures.

Can I use intellectual property to increase the company’s capital?

Yes. The amended Company Law allows contributions in cash or non-cash assets (including intellectual property, land use rights, equity, and receivables). Non-cash contributions must be measurable and legally transferable, with valuation/verification to prevent over- or under-valuation; you must also complete the transfer of title for the IP (for example, patent/trademark assignment with CNIPA, or software copyright recordal updates).

Sound United is the leading designer and manufacturer of consumer audio products in the US. Sound United has been using Hongda since 2013. Moving one’s operation to China is not a small task. But Hongda’s expert services helped us set up a company and deal with tax issues so we could get on with growing our business in no time at all, and that’s why we continue to use them today.



Jack Peng

Asia Pacific Vice President | Sound United

Sound United

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