On October 25, the State Council held an executive meeting and announced significant reforms to China's company registration system, aiming to lower the cost of starting a business and boost social investment. This marks another major evolution in China’s corporate legal framework, following the 2005 Company Law revision. The reform focuses on reducing government intervention, lowering entry barriers, and encouraging entrepreneurial activity. Two key changes include relaxing capital registration requirements and replacing the annual inspection system with a transparent annual reporting mechanism.
Under the new rules, the minimum registered capital for limited liability companies is set at 30,000 RMB, 100,000 RMB for one-person LLCs, and 5 million RMB for joint-stock companies. The initial contribution ratio and payment deadlines are no longer strictly regulated, and the paid-in capital is no longer a requirement for business registration. Instead, a subscription-based system allows shareholders to agree on their contributions, which enhances flexibility and reduces startup costs. Additionally, the annual inspection has been replaced by a public reporting system, increasing transparency and accessibility of company information.
These changes represent a fundamental shift from the rigid "legal capital system" introduced in 1993, which required full capital payments upfront and maintained strict capital maintenance rules. Such a system was seen as overly restrictive, limiting entrepreneurship and stifling private investment. While the 2005 reform improved things by introducing more flexibility, it still left room for excessive regulation. The current reforms aim to address these shortcomings by further lowering thresholds and promoting a more dynamic business environment.
Despite the progress, some challenges remain. For example, the previous minimum capital requirements were still too high for small and innovative businesses, creating unnecessary barriers. By removing these limits, the government hopes to foster greater innovation and support emerging industries. Statistics show that China lags behind countries like Japan and South Korea in terms of the number of businesses per capita, highlighting the need for more supportive policies.
Another important change is the abolition of the annual inspection system, which many viewed as a bureaucratic burden rather than a useful tool. Replacing it with a credit-based reporting system reflects a shift towards a more efficient and transparent regulatory model. This change not only improves the relationship between the government and enterprises but also supports a more market-driven economy.
As economist Milton Friedman once said, “There is strong ideological thinking behind the code.†A robust corporate legal system is essential for a country’s economic competitiveness. Countries like the Cayman Islands have thrived due to their favorable legal frameworks. China’s recent reforms signal a commitment to improving its institutional environment, supporting entrepreneurship, and fostering a more open and dynamic market. These changes are not just procedural—they are a significant step toward building a more competitive and innovative economy.
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