Company Capital Increase Change
Company Capital Increase Change
I.Concept and Function of Capital Increase
Why capital increase and change is necessary in China? Capital increase, also known as company capital augmentation, refers to the act of increasing the registered capital of a company in China for the purpose of expanding its business scope, improving its creditworthiness, and meeting the legal requirements. We can also help clients with capital increase in Hong Kong or Singapore companies. The significance of capital increase lies in the following:
The main function of capital increase is to improve the capital structure of the enterprise, enhance its strength, and make it easier to obtain external financing.
II.Methods for a Company to Apply for Capital Increase
- Inviting new capital involves inviting new investors to contribute to the company’s capital, which can lead to a change in the existing shareholding ratio. For example, if a company originally had a total capital contribution of 10 million yuan, with shareholder A contributing 5 million yuan (50% of the total capital), shareholder B contributing 3 million yuan (30% of the total capital), and shareholder C contributing 2 million yuan (20% of the total capital), and the company decides to increase its capital by 5 million yuan, then shareholder A can subscribe for 1 million yuan, shareholder B can subscribe for 3 million yuan, and shareholder C can subscribe for 1 million yuan. This will result in a change in the shareholding ratio of the existing shareholders.
- After the capital increase, both shareholder A and shareholder B hold 40% of the total capital, while shareholder C holds 20% of the total capital. This method of capital increase can be applied to shareholders internally or to situations where external partners contribute to the capital increase.
- When establishing a company in China, increasing the capital contribution in proportion to the original capital contribution without changing the proportion of capital contribution can only be applied to internal shareholders.
III.Conditions for handling changes in business scope
- To increase capital for a company set up in China, a special resolution must be passed by the general meeting of shareholders (or the shareholders’ meeting) (which must be approved by more than 2/3 of the represented voting rights of the shareholders).
- The increased registered capital in China must be verified by an accounting firm, and the company’s articles of association must be amended accordingly.
- The corresponding registration procedures for the changes must also be carried out.
IV.Conditions for Capital Increase and Corporate Changes
1.A shareholders’ meeting resolution approving the capital increase;
2.Modification or supplementation of the articles of association related to the capital increase;
3.Injection of the capital increase funds (or engagement of an accounting firm to conduct an evaluation of tangible/intangible assets);
4.Modification or supplementation of the articles of association related to the capital increase;
5.Application for business registration, tax registration, and other relevant registration changes for a company established in China.
V.Relevant regulations on the application for capital increase and change of companies in China
- 1.A resolution to amend the company’s articles of association, increase or decrease its registered capital, and a resolution to merge, divide, dissolve or change the form of the company, adopted by the shareholders’ meeting, must be passed by shareholders representing two-thirds or more of the voting rights.
- 2.When a China company issues new shares for its registered capital as a “limited liability company”, it must apply for approval from the department authorized by the State Council or the provincial people’s government. If it is a public offering to the public, it must also be approved by the securities regulatory authority under the State Council.
- 3.When a limited liability company in China increases its registered capital, shareholders’ contributions to the new capital shall be made in accordance with relevant provisions of this law regarding the payment of contributions for the establishment of limited liability companies. When a joint-stock company issues new shares to increase its registered capital, shareholders shall subscribe to the new shares and make payment in accordance with relevant provisions of this law regarding the payment of capital for the establishment of joint-stock companies.
Inter Area based on years of practical experience in handling China company applications, we are able to provide our clients with comprehensive services beyond basic company applications for capital increase and corporate restructuring. Our services include corporate consultation, preparation of application documents, local registration and subsequent accounting and agency services.
Inter Area provides customers with one-stop services to enable investors to truly operate locally and to take care of all business affairs on behalf of the customers. We strive to take into consideration all aspects of the business on behalf of our customers, so that investors can invest with peace of mind and focus on expanding their market.