Registered capital (share capital), according to the legal definitions, refers to the total capital contribution of the shareholders that is registered with the relevant government agency. Part of the authorized capital can remain unissued. The authorized capital can be changed with shareholders' approval. The part of the authorized capital which has been issued to shareholders is referred to as the issued share capital of the company.
Types of Registered Capital
Capital obviously can take the form of cash, but beyond this basic type, the subject becomes slightly more complex. Equipment, machinery, in-kind contributions, intellectual property and technology are the most common forms, but each of these items will require specific review or approval.
Comparison between Registered Capital and Total Investment
Registered capital contribution is subject to more stringent regulation and supervision than total investment. Registered capital must be duly contributed and paid within the time limit stipulated in the company’s articles of association and/or joint venture contract.
Many investors believe that this is the only amount required to be injected into the business and be planned for accordingly. However, this is not the case, and immediate cash flow problems and further unnecessary expense can be avoided if registered capital amounts are properly assessed and planned for.
Total investment refers to the amount (including registered capital and funds borrowed by the company) that is required for the planned project as stipulated in the joint venture contract and the articles of association of the company. PRC law has no mandatory requirements for the amount of total investment that shareholders may stipulate by agreement. Total investment amount can be said a essential factor (as opposed to registered capital amount) for deciding which government agency has the authority to grant FIE approval.
Tips on Registered Capital in China
When you plan to set up a WFOE or JV in China, you will need to come up a register capital amount in your AoA (Article of Association) or investment documents. When calculating the register capital, there are several tips for your reference.
1. Make a forecast analysis on your new investment for at least 2 years. Although some data may be not so accurate, but to use for calculating the register capital is reliable enough.
2. At present, there is a ratio between the register capital and total investment according to the local regulation. You should consider whether there are resources to finance this gap.
3. Do not lured by the incentive resulted from a "big amount" investment. Focus on your business operation, avoiding hastily increase the investment amount.
4. Be alert on the term of register capital injection time. There may be risk even you do not inject all the committed register capital in some cases.
Contact Us
If you have further inquires, please do not hesitate to contact Tannet at anytime, anywhere by simply visiting Tannet’s website english.tannet-group.com, or calling Hong Kong hotline at 852-27826888 or China hotline at 86-755-82143422, or emailing to tannet-solution@hotmail.com. You are also welcome to visit our office situated in 16/F, Taiyangdao Bldg 2020,Dongmen Rd South, Luohu, Shenzhen, China.
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