With the official implementation of the newly revised Company Law in 2023, significant adjustments have been made to the rules for enterprise capital contribution. As the owner of a start-up, understanding the new law's regulations on the methods, deadlines and transitional policies of capital contribution is the key to avoiding legal risks and optimizing fiscal and tax management. This article, in light of the new law's provisions, sorts out the key points and practical suggestions for enterprises' investment, helping you master the essential tax and finance survival guide - saving money and complying!

Corporate Capital Contribution Methods: Compliant paths for monetary and non-monetary contributions

According to Article 48 of the new Company Law, the capital contribution methods that shareholders can choose from include the following two categories:

Monetary contribution

Requirements: Direct capital contribution in RMB or freely convertible foreign currency must be deposited into the company's bank account and a capital verification certificate must be obtained.

Advantages: The procedure is simple, no assessment is required, and it is directly included in the paid-in capital.

Non-monetary contribution

Permitted scope: Physical objects, intellectual property rights, land use rights, equity, creditor's rights and other properties that can be valued in currency and legally transferred.

Core requirements：

➡ An "Assessment Report" issued by a professional assessment agency is required, and the valuation must not be overestimated.

➡ The transfer registration of ownership (such as real estate, patents, etc.) needs to be completed;

➡There is no upper limit to the proportion of non-monetary contributions (the old law stipulated a maximum of 70%).

Risk Warning: For intangible assets such as technology patents, pay attention to their timeliness and liquidity to avoid subsequent disputes.

Contribution Period: Five-year paid-in capital system and transitional period arrangement

Core changes of the new law

▶ Limited liability company: All shareholders are required to complete the paid-in capital within five years after the establishment of the company (the old law had no specific time limit and allowed the "subscribed capital system").

▶ Joint stock limited company: The initiators must fully pay the capital before the establishment. Those established through public offering must be fully paid up within two years after their establishment.

Transitional policy

For existing enterprises (established before July 1, 2024) : The remaining capital contribution period must be adjusted to within five years within three years (i.e., before June 30, 2027).

For instance, a certain company originally had a commitment period of 10 years (due in 2030), and it needs to complete the actual payment in advance to 2027.

Newly established enterprises:

Directly apply the 5-year paid-in capital rule

The key difference between subscribed capital contribution and paid-in capital contribution

Coping strategies during the Transition period of the Old and New Company Laws

Suggestions for adjusting existing enterprises

       Sort out the capital contribution plan: Recalculate the remaining capital contribution amount and schedule to ensure that the five-year actual payment requirement is met by June 30, 2027.

       Optimize the investment structure: For enterprises with high demands for technology and equipment, non-monetary assets can be given priority for investment to alleviate cash flow pressure.

Notes for Newly established enterprises

       Avoid overestimating the registered capital: It is recommended to set the capital based on the actual business needs to prevent difficulties in future actual payment.

       Keep the capital contribution vouchers: Bank receipts, assessment reports, and property rights transfer documents need to be archived for a long time for future reference.

Special circumstances handling

       Risk of unpaid debts: If the company is insolvent, creditors may demand that shareholders make their capital contributions in advance.

       Exit path for capital reduction: For enterprises that are unable to make actual capital contributions, the registered capital can be reduced through the capital reduction procedure, but an announcement must be made and debts settled.

Tax and Finance Compliance Reminders

Tax optimization for non-monetary contributions

       Technology equity investment can apply for deferred payment of individual income tax (subject to compliance with Document No. 101 of the Ministry of Finance and the State Taxation Administration [2016]).

       Physical contributions are subject to value-added tax based on the assessed value (if they are old assets, simplified tax calculation may apply).

The consequences of false capital contribution

       Shareholders who fail to fully pay or withdraw their capital contributions may face fines (5% to 15% of the illegal amount), restrictions on their qualifications for senior management positions, and even criminal liability.

       The new Company Law of 2023 has strengthened the paid-in responsibility of enterprises for their capital contributions. Start-up enterprises need to balance capital planning and compliance requirements from the top-level design. It is suggested that business owners collaborate with tax and finance advisors and legal teams as early as possible to formulate appropriate investment plans to avoid business risks caused by misinterpretation of rules.

Note: (This article is based on Article 48, Article 266 and other provisions of the Company Law of the People's Republic of China (Revised in 2023). The specific implementation shall be subject to the official interpretation.)