Analysis of the Existing Company Adjusting the Capital under the New Company Law

On December 29,2023, the Seventh Session of the 14th National People's Congress Standing Committee passed the newly revised Company Law, which will take effect on July 1, 2024. This revision marks the most significant overhaul of the Company Law since its enactment. Notably, the revised law introduces restrictive provisions regarding the time limits for shareholders' capital contributions.

For companies registered before the implementation of the new Company Law, if their capital contribution deadlines exceed the statutory limits under the revised law, should these deadlines be promptly adjusted? How should such adjustments be executed? This article, in accordance with the relevant provisions of the new Company Law, outlines key considerations for existing companies adjusting their registered capital, providing practical guidance for readers.

I. The Time Limit for Shareholders to Make Capital Contributions as Specified in the New Company Law

The new Company Law stipulates that the registered capital of limited liability company should be paid in full within 5 years from the date of the company's establishment, and for the companies registered before the implementation of the new Company Law, the time limit of capital contribution should be gradually adjusted to 5 years.

The new regulations have extended the previously unlimited subscription period for registered capital to five years, imposing significant restrictions on shareholders 'capital contribution obligations. This adjustment enables shareholders to more rationally assess their actual needs and financial capacity when determining a company's registered capital. By effectively curbing the establishment of "ideal strength-type" companies—those with inflated registered capital and shareholders lacking actual payment capacity—the five-year subscription period also provides other market participants with credible and reliable credit data, thereby fostering a fairer competitive market environment.

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Article 47 of the revised Company Law stipulates: The registered capital of a limited liability company shall be the total subscribed capital contributions of all shareholders as registered with the company registration authority. All shareholders shall fully pay their subscribed capital contributions within five years from the date of the company's establishment, in accordance with the provisions of the company's articles of association.

Where laws, administrative regulations or decisions of the State Council provide otherwise for the actual payment of registered capital, the minimum amount of registered capital or the time limit for shareholders to make capital contributions to a limited liability company, such provisions shall prevail.

Article 266 of the revised Company Law: This Law shall take effect on July 1, 2024.

For companies registered before the enactment of this Law, where the capital contribution period exceeds the statutory limit, they shall be gradually adjusted to comply with the period stipulated herein, unless otherwise provided by laws, administrative regulations, or the State Council. Where the contribution period or amount is manifestly abnormal, the company registration authority may require timely adjustment in accordance with the law. The State Council shall prescribe the specific implementation measures.

II. Adjustment of the funding period and transition period

The new Company Law mandates a maximum subscription period effective July 1, 2024, for existing companies. To facilitate lawful adjustments to registered capital, the State Administration for Market Regulation drafted the "State Council's Provisions on Implementing the Registered Capital Registration System under the Company Law of the People's Republic of China (Draft for Comments)". This establishes a three-year transition period (July 1, 2024 to June 30,2027) for companies established before the law's implementation. Specifically, limited liability companies must adjust shareholders' capital contribution deadlines to within five years during this period (no adjustment required if remaining deadlines expire before July 1, 2027). The revised deadlines must be published on the National Enterprise Credit Information Publicity System. Joint-stock companies are required to fully pay their share subscription amounts within three years.

Under these regulations, shareholders of limited liability companies are entitled to a maximum eight-year grace period for capital contributions, covering a three-year transition period plus a five-year contribution window. For existing limited liability companies, the new Company Law requires them to complete the actual payment of registered capital by June 30,2032 at the latest.

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Article 3 of the "State Council's Provisions on Implementing the Registered Capital Registration Management System under the Company Law of the People's Republic of China (Draft for Comments)" stipulates: Pursuant to Article 266 of the Company Law, a three-year transition period shall be established from July 1, 2024 to June 30,2027. For companies established prior to the implementation of the Company Law whose capital contribution deadlines exceed the statutory timeframe, such deadlines shall be adjusted during the transition period.

For limited liability companies established before the implementation of the Company Law, if the remaining capital contribution period is less than five years as of July 1, 2027, no adjustment is required. If the remaining period exceeds five years, the shareholders must adjust it to within five years during the transition period. The adjusted capital contribution period shall be recorded in the company's articles of association and legally disclosed to the public on the National Enterprise Credit Information Publicity System.

The joint stock limited company established before the implementation of the Company Law shall pay the full amount of the subscribed shares within the three-year transition period.

III. Legal Consequences of Failing to Adjust the Capital Contribution Deadline During the Transition Period

The shareholder contribution deadline constitutes a mandatory requirement in the company's articles of association. Failure to comply with this deadline during the statutory transition period violates the Company Law's mandatory provisions. Any contribution deadlines exceeding the new Company Law's requirements, as stipulated in the articles, shall be deemed invalid, and the corresponding deadlines shall be adjusted to the latest deadline prescribed by the updated Company Law. Furthermore, the company will face the following legal consequences:

(1) The company registration authority may require the company to adjust the capital contribution deadline within 90 days in accordance with the law.

Exceptions:

① For companies with a capital contribution period exceeding thirty years or a capital contribution amount exceeding RMB 1 billion, if the capital contribution period and amount are found to be significantly abnormal after comprehensive assessment, the provincial market supervision department may require them to adjust the capital contribution period and amount within six months. The adjusted capital contribution period shall not exceed five years from July 1, 2027. (Article 7 of the State Council's Provisions on Implementing the Registered Capital Registration Management System under the Company Law of the People's Republic of China (Draft for Comments))

② Companies undertaking major national strategic tasks, those related to national economy and people's livelihood, or those involving national security and significant public interests (including private, foreign-invested, state-funded, and other types of companies) may continue to contribute capital within the original time limit, provided that they obtain approval from the competent department of the State Council or a provincial-level or higher people's government. (Article 8 of the "Provisions of the State Council on Implementing the Registered Capital Registration Management System of the Company Law of the People's Republic of China (Draft for Comments)")

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Article 6 of the State Council's Provisions on Implementing the Registered Capital Registration System under the Company Law of the People's Republic of China (Draft for Comments) stipulates: For limited liability companies established before the Company Law took effect, if their capital contribution deadlines remain unchanged during the transitional period, the company registration authority may legally require them to adjust these deadlines within 90 days. The adjusted deadlines shall not exceed five years from July 1, 2027.

(2) The company registration authority makes special annotations on the National Enterprise Credit Information Publicity System and publishes them to the public

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Article 14 of the "Provisions of the State Council on Implementing the Registered Capital Registration Management System under the Company Law of the People's Republic of China (Draft for Comments)" stipulates: If a company fails to adjust its capital contribution period or amount as required by Articles 6 and 7, the company registration authority shall issue a special mark on the National Enterprise Credit Information Publicity System and make it publicly available.

(3) The company registration authority may impose corresponding administrative penalties on the company.

If the company does not adjust the capital contribution period and the shareholders fail to make timely capital contributions, the company registration authority may impose a fine of 50,000 to 200,000 yuan on the company. In serious cases, a fine of 5% to 15% of the amount of false capital contribution or uncapitalized amount may be imposed.

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Article 252 of the revised Company Law stipulates: Where a company's promoters or shareholders make false capital contributions by failing to deliver or deliver non-monetary assets on time, the company registration authority shall order rectification and may impose a fine ranging from 50,000 to 200,000 yuan. In severe cases, the fine shall be equivalent to 5% to 15% of the falsely contributed or undelivered capital. Directly responsible supervisors and other liable personnel shall be fined between 10,000 and 100,000 yuan.

The author contends that under the unrestricted subscribed capital system, shareholders tend to agree on excessively long payment deadlines, which may lead to negligence in fulfilling capital contribution obligations. This approach undermines the long-term healthy development of companies and compromises creditor protection. The revised Company Law mandates a five-year subscription period and requires rigorous verification of capital contribution capacity for newly established companies. These provisions help standardize registered capital management while enhancing transparency and accuracy in corporate disclosures. Furthermore, the new regulations strengthen companies 'debt repayment capacity, thereby safeguarding creditors' legitimate rights. Registered capital is no longer an abstract figure but a tangible indicator of a company's financial strength.