China Wholly Foreign Owned Enterprises (WFOE or WOFE) are the most common adopted invest vehicles of foreign investors in China. The company's registered capital is one of the issues that the registered company needs to consider at first. Now, BC will analyze how to determine the registered capital of the company, as follows:
How to determine the registered capital of China WFOE
The registered capital is also called legal capital. It is the total amount of capital subscribed or subscribed for by all shareholders or sponsors as stipulated in the articles of association of the company system and is registered in the company registration authority.
Shareholders of Co., Ltd. shall bear limited liability for the company with the amount of capital they have subscribed to.
The limited liability is the limited discharge liability, which refers to the form of liability that the investor will only be responsible for repaying the debt of the enterprise against the capital invested by the enterprise itself, if the capital is insolvent, and the excess part is naturally exempted.
The greater the registered capital, the better
The greater the registered capital, the more responsibility the company must assume. Therefore, when registering capital, it is important to calculate what is sufficient to match your current financial ability or ability to expect capital. Registered funds are inflated, and the lack of shareholders' own ability will allow them to fall into unnecessary dilemmas.
The company's strength and financial resources also cannot be explained by registered capital alone. It is not advisable to increase the registered capital to obtain the idea of improving the company's strength. Only not making payments will reduce your company’s credit.
Suggestions:
1. We must do our best to determine the company's registered capital and commitments for actual contributions in accordance with our operational needs.
2. Incremental as appropriate, registered capital can be adjusted according to operating conditions.
Capital increase: When the company is in it’s initial stages, the registered capital can be set to a lower amount. Later, after the company expands, the company has the ability to assume greater responsibility and business needs do to change.
3. Business normalization: Peer standards have great reference significance. Different industries have different requirements for registered capital. We can refer to the registered capital of companies in the same industry and compare it with our company’s actual situation in order to make good decisions.
Registration System
The registered capital and current company law should be handed over to the registration system.
That is, shareholders of the company voluntarily agree to subscribe for the amount of capital contribution, the mode of contribution, and the time limit for investment. It should also be recorded in the company's articles of association.
The subscription system is the total amount of registered capital subscribed and registered by the industry and commerce department only. It does not need to register paid-in capital, and no verification documents for capital verification are collected. The business license is no longer the actual income.
The subscription registration system does not require the use of corporate funds, which can effectively improve the efficiency of capital operations and reduce business costs.
The advantages of a registered capital subscription system:
For venture investors, the subscription registration system does not need to register paid-in capital, occupy enterprise funds, or receive verification documents; which can effectively improve capital operating efficiency and reduce corporate costs. This effectively implements the autonomy of enterprises and individuals in investment.
For the venture capital environment, the registration system makes the registered company more convenient, the costs cheaper, and better promotes "mass entrepreneurship, and innovation.” This also helps improve China's overall innovation.
For the administrative examination and approval process, the examination and approval of production and business activities and the examination and approval costs of investment projects shall be reduced, and the efficiency of administrative examination and approval shall be improved.
Relationship between registered capital and total investment of WFOEs:
Registered capital refers to the total amount of capital registered in the administrative department for industry and commerce for the establishment of a company. Registered capital is the basis for investors to take risks and share profits with the company. The total investment refers to the investment required according to the production scale stipulated by the company's contract and articles of association. This includes the sum of capital construction funds and production liquidity. In addition to registered capital, total investment also includes borrowed funds.
The registered capital and total investment of an enterprise should maintain a certain proportion. The ratio of the two is as follows:
(1) If the total investment is less than 3 million US dollars (including 3 million US dollars), then its registered capital should be at least 7/10 of the total investment;
(2) If the total investment is between 3 million US dollars and 10 million US dollars (including 10 million US dollars),
the registered capital shall be at least 1/2 of the total investment, of which, if the total investment is less than 4.2 million US dollars, the registered capital shall not be less than 2.1 million US dollars;
(3) If the total investment is between 10 million US dollars and 30 million US dollars (including 30 million US dollars), then it’s registered capital should be at least 2/5 of the total investment. Wherein the total investment is less than 12.5 million US dollars, the registered capital shall not be less than 5 million U.S. dollars;
(4) If the total investment is more than 30 million U.S. dollars, its registered capital should be at least 1/3 of the total investment. Where the total investment is less than 36 million U.S. dollars, the registered capital shall not be less than 12 million U.S. dollars.
Registration Related Reading
The 28th session of the 12th National People's Congress Standing Committee decided to change the "Company Law" and implement it on March 1, 2014. Except as otherwise stipulated, the cancellation of the company's shareholders should be within two years after the establishment of the company and the capital contribution is paid in full. The investment company can pay the full capital contribution within five years and cancel the requirement that shareholders of a one-person limited company should fully contribute capital at one time. The shareholders of the company can voluntarily agree to subscribe for the amount of investment and the mode of investment. The term of investment, etc., is recorded in the company's articles of association.
Article 26 of the "Company Law" was amended to read: "The registered capital of a limited liability company is the amount of capital contribution subscribed by all shareholders registered in the company registration authority."
The conditions for registration of registered capital are relaxed. Except for the other provisions on the minimum registered capital of the company, the limited registered capital of the limited liability company, one-person limited liability company, and limited liability company shall be limited to 30,000 yuan, 100,000 yuan, and 5 million yuan respectively; This does not restrict the establishment of the company, the shareholder (sponsor)'s initial capital contribution ratio and currency investment ratio.
At the same time, there should be a simplification of registration items and registration documents. The amount of capital subscribed by the shareholders of a limited liability company and the paid-in capital of the company are no longer registered. When a company is registered, it is not necessary to submit a capital verification report.
Old Company Law Regulations:
Article 26 states that the registered capital of a limited liability company shall be the amount of capital contribution subscribed by all shareholders registered in the company registration authority. The initial capital contribution of all shareholders of the company shall not be less than 20% of the registered capital, nor shall it be less than the statutory minimum registered capital. The remaining part shall be fully paid by the shareholders within two years from the date of establishment of the company; in which the investment company may pay in full within five years.
The minimum amount of registered capital of a limited liability company is RMB 30,000. If laws and administrative regulations have a higher limit on the minimum amount of registered capital of a limited liability company, such provisions shall prevail.
Amendment to New Company Law:
Article 26 states that the registered capital of a limited liability company shall be the amount of capital contribution subscribed by all shareholders registered in the company registration authority. If laws, administrative regulations, and the State Council decide to provide other provisions on the paid-in company registered capital and the minimum amount of registered capital, such provisions shall prevail.
