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What Exactly is Registered Capital?
Registered capital, also known as committed registered capital, refers to the total amount of capital that shareholders commit to invest in a company. This commitment is legally documented and appears on the company's business license and in its Articles of Association (AOA).
Key 2024 Update:
Under China's New Company Law (2024), all registered capital must be fully paid within five years from the company’s establishment—applicable to both new and existing companies.
What is Paid-In Capital?
Paid-in capital, also known as paid-up capital, is the actual amount of capital that shareholders have contributed to the company. This represents the funds available for operations and growth.
Why It Matters:
- Paid-in capital is a stronger indicator of financial health than registered capital because it reflects real investments made by shareholders.
- A large gap between registered and paid-in capital may indicate that the company has not yet injected sufficient funds, posing financial risks.
Differences Between Registered Capital and Paid-In Capital
Under the Company Law of China, businesses use a capital subscription system for shareholder contributions. Key differences:
New 2024 Capital Contribution Rule
- Shareholders must fully contribute their capital within five years (previously, companies could delay this indefinitely).
- No minimum cash contribution requirement—capital can be in cash, intellectual property, equipment, or other non-monetary assets.
- Shareholders remain liable for unpaid capital even after transferring their equity.
🔗 Looking for a full guide on China’s registered capital requirements under the 2024 Company Law? Read: China Registered Capital: What SMEs Must Know Under the 2024 Company Law.
Importance of Registered and Paid-In Capital in Assessing Credibility
For international businesses evaluating Chinese partners, it’s critical to differentiate between these two forms of capital. A company with substantial registered capital but little paid-in capital may:
- Struggle to meet financial obligations
- Face cash flow issues affecting operations
- Pose risks for contracts, investments, and transactions
Indicators of a Company’s Financial Health
When conducting due diligence, registered capital alone is not enough. You should also check:
- Annual financial reports (profit & loss statements, balance sheets)
- Tax payment records (to ensure regulatory compliance)
- Credit history (via the People’s Bank of China Credit Reference Center)
- Litigation & enforcement records (China Judgment Online database)
- Supplier payment history (indicates cash flow reliability)
- Debt-to-equity ratio & liquidity ratios (compare with industry benchmarks)
By verifying these indicators, businesses can assess the real financial strength of a Chinese company before engaging in agreements.
Practical Tools for Credibility Assessment
In 2024, businesses have access to advanced tools to assess the credibility of Chinese companies:
- Government Databases: Verify company details in the National Enterprise Credit Information Publicity System.
- Financial Data Platforms: Check company financials and capital compliance records.
- Legal Due Diligence Services: Work with China-qualified lawyers to conduct verification and risk analysis.
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