What is registered capital in cross-border investments?

2022-08-25

Registered capital is a common issue during cross-border investment. It is not only a number, but is also related to various scenarios of business operation, financing, tax, dividends, liquidation, etc.

Registered capital is frequently brought about from our clients during cross-border investment activities. In this article, we will share our insights into registered capital in a Q&A format based on our business practices.

Q: Is a higher registered capital better or a lower registered capital better?

A: For a newly established company, the setting of registered capital usually connects to the company's own business needs, shareholder risks, compliance regulation and other aspects.

Since 2014, the Chinese mainland has terminated the paid-in registered capital system and the minimum registered capital limit, but it does not mean that a higher registered capital is better.

The registered capital subscription registration, although simplifies the company registration process, does not change the liability of the shareholders based on their capital subscription.

In the event of a debt dispute or legal dissolution and liquidation of the company, shareholders who have not paid up their portion of registered capital will still be liable for the unpaid portion.

However, the cancellation of the limit of minimum registered capital does not mean that a lower registered capital is better.

Registered capital is usually one of the most important sources of operation capital in the early stages of a business, which can be used to pay rent, staff salaries and buy office supplies, etc.

When a company’s business is monitored by local authorities or required to apply for special licenses, it is possibly asked to have their registered capital paid up. For example, if a company in China applies for an ICP license of the value-added telecommunications industry, it must have a registered capital of no less than RMB 1 million. If a financial guarantee company is newly established, its registered capital must also not be less than RMB 20 million and must be paid up.

Q: What is ‘the difference between the total investment and registered capital’ of a foreign-invested company?

A: According to regulations by The State Administration for Industry and Provisional Regulations (replaced by the State Administration of Market Regulation in 2018) and the State Administration of Foreign Exchange, a foreign-invested company must show its registered capital and total investment amount when it sets up. If the company shall borrow foreign debt, it can borrow no more than ‘the difference between the total investment and registered capital’. The following table shows the required proportion of registered capital of a Sino-foreign joint venture.

Number	Total Investment Amount	Percentage of Registered Capital over Total Investment Amount
1	≤$ 3 million	≥70%
2	≥$ 3 million but ≤$ 10 million	≥50%
3	≤$ 4.2 million	Total investment amount≥$21 million
4	≥$ 10 million but ≤$ 30 million	≥40%
5	≤$ 12.5 million	Total investment amount≥$12.5 million
6	≤$ 30 million	≥33%
7	≤$ 36 million	Total investment amount≥$12 million

In recent years, the ‘the difference between the total investment and registered capital’ is no longer a mandatory item during a company’s commercial registration. In Beijing, for example, the State Administration for Market Regulation no longer requires foreign-invested enterprises to register their total investment when they set up.

Q: What are the similarities and differences of the requirements for registered capital when a company sets up in Cayman, BVI and Hong Kong, and Mainland China?

A: The following table shows the basic requirements for registered capital in each jurisdiction.

	Chinese mainland	Hong Kong	Cayman	BVI
Types of registered companies	Limited liability company	Limited by shares	Limited by shares	Limited by shares
Amount of registered capital required	No minimum amount of registered capital, unless a company is monitored by regulators or applies for a license.	Authorized stock cancelled in 2014. If a company is monitored by regulators, it shall meet the requirement of minimum issued share capital and pay up the registered capital.	Authorized capital, normally $50,000. A company can issue shares by defining the nominal value of the shares.	Authorized capital, normally $50,000. The amount of authorized share capital is accounted for on the basis of the value of each share. A Company may define the nominal value of shares.
Currency	RMB for domestic companies. USD or RMB for foreign-invested companies.	Any currency. Usually Hong Kong Dollars.	Any currency. Usually USD.	Any currency. Usually USD.
Shareholder liability	The shareholders have limited liability to the company.	A shareholder is liable to the company based on the registered capital he subscribed.	A shareholder is liable to the company based on unpaid share capital.	A shareholder is liable to the company based on unpaid share capital.
Whether a company must pay up the registered capital?	Yes for a company that belongs to a monitored industry.	Shareholders have a subscription obligation in respect of the issued subscribed share capital.	Cayman shareholders have a subscription obligation in respect of the subscribed issued share capital.	BVI shareholders have a subscription obligation in respect of the subscribed issued share capital.