PricewaterhouseCoopers said on its social media account last month that the change appears to be aimed at better protecting creditors, although it’s also likely to “lower investors’ enthusiasm to start new businesses.”
Chinese lawmakers changed the country’s Company Law by setting tougher capital rules for registering a new firm, an effort to close loopholes in corporate governance and prevent financial risks.
The revised law takes effect July 1, 2024, the official Xinhua News Agency said Friday. While the full text of the amendment wasn’t immediately available, Xinhua reported earlier that the law will require a company’s shareholders to inject the declared amount of capital within five years. The time limit could be shorter for some key industries.
The revisions were adopted after a rare fourth review and reversed a 2013 reform that allowed shareholders to set their own deadlines for paying the capital.
The changes were intended to “promote responsible shareholder behavior and contribute to a more robust business environment,” the official China Daily reported, citing legal scholar Liu Junhai, a key contributor to the amendments.
The new rule is unlikely to impact the operations of state-owned enterprises and publicly listed companies. Some entrepreneurs and lawyers were worried about the change because it came as a surprise and brought uncertainty, according to a report by the 21st Century Business Herald in August.
PricewaterhouseCoopers said on its social media account last month that the change appears to be aimed at better protecting creditors, although it’s also likely to “lower investors’ enthusiasm to start new businesses.”
It wasn’t immediately clear how the new law might impact existing companies that registered but have yet to make the capital contribution in full.