When engaging with new markets, it’s easy to become overwhelmed by the number of unfamiliar terms and requirements needed to be addressed in order to fulfil your regulatory requirements and to successfully assess potential partners, customers and businesses. In the China context, the distinction between and importance of registered capital and paid-up capital is one such point of potential confusion.
Paid-up, or paid-in, capital is the amount of money a company has received directly from shareholders in exchange for its stock.
The registered capital is the maximum amount of share capital that a company is authorized to raise. The limit is outlined in the company’s constitutional documents and can only be changed with the approval of the shareholders. According to Chinese company law, the shareholders of a Chinese company must file the amount of registered capital held by a company with the local Administration of Industry and Commerce (AIC). This amount will be shown on the company’s business license.
In short, paid-up capital is the capital already held by the company. It is important because it is capital which is not borrowed. Registered capital for a new company is the declared figure for capital to be potentially injected into the company into the future.
Why is this important?
This is important for three main reasons:
- The registered capital of a company shows its fund strength or capacity
- For some industries, there is a minimum amount of registered capital required before the company can enter the industry
- A company that is fully paid-up has sold all available shares and so cannot increase its working capital unless it borrows money by taking on debt.
It is also important to understand that registered and paid-up capital do not have to be the same, however the amount of paid-up capital CANNOT exceed that of registered capital. Attention should also be paid to any large discrepancies between the two amounts. Large discrepancies, or higher paid-up capital amounts need to be investigated as red flags indicating potential irregular activity.
For more information and tips about doing business in China, check out our Checking China e-book here: https://asiaverify.com/what-you-need-to-know-about-the-chinese-business-license/
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