For businesses engaging with Chinese companies, understanding their capital structure is essential for assessing financial stability and credibility. Registered capital plays a key role in company formation, but it does not always reflect the actual financial strength of a business.
With the 2024 amendments to China’s Company Law taking effect on July 1, 2024, registered capital requirements have undergone major changes—including a mandatory five-year payment deadline for all registered capital commitments. This updated guide provides a comprehensive overview of the new legal framework, what it means for businesses, and key financial indicators to verify a Chinese company’s actual capital position before engaging in contracts or investments.
Key Takeaways
- Registered capital is the amount shareholders commit to contributing when incorporating a company in China. It may not reflect the actual funds injected into the business.
- Paid-in capital is the amount of capital that has actually been injected into a company.
- Under the 2024 Company Law, all registered capital must be fully paid within five years of company establishment.
- There is no longer a requirement for a minimum cash contribution—shareholders may contribute non-monetary assets in full.
- A company’s registered capital does not always indicate its financial strength, especially under China's "capital subscription system," which allows delayed capital contributions.
- Verifying a Chinese company’s paid-in capital is critical when assessing its financial health for potential business dealings.
Understanding Registered Capital in China
What is Registered Capital?
Registered capital refers to the amount of capital a company's shareholders agree to contribute when applying for company incorporation with the Chinese government. This amount is stated in the Articles of Association and on the company's business license.
Where to Verify a Company’s Registered Capital?
You can verify a company’s registered capital through:
- Articles of Association (AOA): Outlines the company's capital commitment and shareholder obligations.
- Business License: Displays the registered capital amount as approved by local authorities.
- Government Databases: Platforms like the National Enterprise Credit Information Publicity System (available in Mandarin) provide official records.
Legal Requirements for Registered Capital Under the 2024 Company Law
- New Mandatory Five-Year Contribution Rule: All registered capital must be fully paid within five years from company incorporation. This applies to both newly established and existing companies.
- No minimum cash contribution: The previous 30% cash requirement has been removed, and capital can now be fully contributed in non-monetary assets such as intellectual property and equipment.
- Stronger enforcement mechanisms: Creditors can demand capital acceleration if the company struggles financially, and shareholders transferring equity remain liable for unpaid capital contributions.
Is Registered Capital a Reliable Indicator of Financial Strength?
- Yes, in some cases: Registered capital indicates a company’s planned operational scale and its maximum liability to creditors.
Higher registered capital suggests a larger financial commitment by shareholders. - No, in many cases: Due to China’s capital subscription system, registered capital may be paid in installments over years—or not at all. A company with millions in registered capital might have no actual funds injected, making it an unreliable indicator of financial strength.
🔗 Want a side-by-side comparison of registered capital vs. paid-in capital? Check out our in-depth guide: Registered Capital vs. Paid-In Capital: Key Differences & 2024 Updates.
Understanding Paid-In Capital in China
What is Paid-In Capital?
Unlike registered capital, paid-in capital is the actual amount of money that has been injected into a company by its shareholders.
Where to Verify a Company’s Paid-In Capital?
- National Enterprise Credit Information Publicity System (NECIPS): The official government database.
- Annual Financial Reports: Submitted to authorities and available upon request.
Why Paid-In Capital Matters More Than Registered Capital
- Paid-in capital reflects the actual financial strength of a company, as it shows how much shareholders have truly invested.
- A large gap between registered and paid-in capital can be a red flag, indicating a company might be overpromising its financial position.
- Due diligence should focus on paid-in capital rather than registered capital when assessing a Chinese company's credibility.
Assessing a Chinese Company's Financial Reliability
Registered capital alone is not enough—you should check paid-in capital and additional financial indicators, including:
- Annual financial reports: Evaluate revenue, expenses, and profitability.
- Tax payment records: Check compliance and financial discipline.
- Credit history: Obtain reports from the People’s Bank of China Credit Reference Center.
- Litigation & enforcement records: Review disputes on China Judgment Online (中国裁判文书网).
- Debt levels: Assess liabilities relative to assets.
- Supplier payment history: Identify potential cash flow issues.
Additionally, comparing a company’s financial ratios—such as liquidity ratio, debt-to-equity ratio, and operating margin—against industry benchmarks provides deeper insights before making business commitments.