How China citizen setting up a private limited company

Conditions and precautions for Chinese citizens setting up a private limited liability companies in Mainland China.

Procedure of Establishment

  • Application for name pre-approval
  • Funding and opening bank accounts
  • Capital verification
  • Application for establishment registration
  • Approval business license
  • Signing of capital certificate and provision of shareholder register rights and obligations

Registration conditions of setting up a private limited company

Registration of limited liability companies shall meet the following conditions:

1. The shareholders meet a quorum. The quorum refers to the double meaning of statutory qualifications and limited numbers. Statutory qualifications refer to the qualifications of shareholders according to laws, regulations, and policies of the
country.

The quorum is the number of shareholders of registered limited liability companies as stipulated in the Company Law. The company law limits the number of shareholders of limited liability companies between two and fifty. One-person limited company only has one shareholder.

2. The shareholder’s capital contribution reaches the minimum amount of legal capital. (For details, please refer to) Companies must have sufficient capital to operate normally. Without the shareholder’s capital contribution, a company cannot be established. The total amount of shareholders’ capital contribution must reach the minimum amount of legal capital. That is:

  • (1) RMB 500,000 for a company mainly engaged in production and operation;
  • (2) RMB 30,000 for a company mainly engaged in commodity wholesale;
  • (3) RMB 30,000 for a company mainly engaged in commercial retail;
  • (4) RMB 100,000 for scientific and technological development, consulting, and service companies.

Where the minimum amount of registered capital of a limited liability company in a particular industry needs to be higher than the limit set in the preceding paragraph, it shall be separately provided for by laws and administrative regulations (for example, the auction industry requires at least 1 million yuan of registered capital).

Shareholders can make monetary contribution, and they can also use physical goods, industrial property rights, non-patented technology, intellectual property rights, and land use rights as their contribution.

The amount of capital contributed by industrial property rights and non-patented technology cannot exceed 20 percent of the limited liability companies, except where there are special provisions for the adoption of high-tech achievements by the State.

The Notice on Printing and Distributing the ‘Provisions on Issues Concerning Capital Contributions to Shares of High and New Technology Achievements’, issued by the Ministry of Science and Technology and the State Administration of Industry and Commerce, stipulates, when high-tech achievements are used to be contributed to limited-liability companies, the total amount can exceed 20% of the company’s registered capital, but cannot exceed 35%; if the amount exceeds 20% of the company’s registered capital, it must be reported to and confirmed by the provincial-level technology management authority before going to the administrative department for industry and commerce to register.

3. Shareholders formulate the articles of association together. The company’s articles of association shall be formulated by all capital contributors on the basis of voluntary negotiation. With the consent of all capital contributors, shareholders shall sign and seal the company’s articles of association.

4. There is a company name and an organization that meets the requirements of a limited liability company. Besides its name should conform to the general provisions of the name of a corporate entity, the establishment must also indicate “limited liability company” or “limited company” in the company name. The establishment of an organization that meets the requirements of a limited liability company means that the composition, production, and authority of the organization of a limited liability company meet the requirements of the “Company Law.”

The company’s organizational structure generally refers to the shareholders’ meeting, the board of directors, the board of supervisors, and the manager, or the shareholders’ meeting, the executive director, one to two supervisors, and the manager. The larger amount of shareholders and the company size, the more applicable of the former.

5. There are fixed production and operation sites and necessary production and operation conditions.

Legal characteristics of Chinese private limited companies

1. According to the new “Company Law” that was implemented from January 1, 2006, a limited liability company has the following legal characteristics:

  • (1) It is an enterprise legal person. The shareholders of the company take responsibility for the company with their capital contribution, and the company assumes responsibility for the debt of the company with all its assets.
  • (2) The number of shareholders of a limited liability company is strictly limited. The regulations on the number of shareholders of limited liability companies vary from country to country. China’s “Company Law” stipulates that the number of shareholders is between 2 and 50.
  • (3) A limited liability company is a capital company, but it also has a strong personal element. The number of shareholders of the company is limited. Shareholders are generally acquainted with each other and have a certain level of trust. The transfer of shares is subject to certain restrictions. Transfer of shares to anyone other than the shareholders requires the consent of more than half of the other shareholders.
  • (4) A limited liability company cannot raise company capital from the public or issue shares.

2. The establishment of a limited liability company owned by Chinese citizens shall meet the following conditions:

  • (1) The shareholders are in a quorum;
  • (2) The shareholder’s capital contribution reaches the minimum limit of legal capital;
  • (3) The shareholders formulate together;
  • (4) Having a company name and establishing an organization that meets the requirements of a limited liability company;
  • (5) Having a company residence.

3. The articles of association of a limited liability company shall specify the following:

  • (1) Company name and address;
  • (2) key structure, like shares;
  • (3) Company business scope;
  • (4) The name of the shareholder;
  • (5) The form, amount and time of capital contribution;
  • (6) The company’s organization and its method of production, authority, and rules of procedure;
  • (7) Legal representative of the company;
  • (8) Other matters that the shareholders’ meeting deems necessary.

4. The special form refers to a limited liability company with only one natural person shareholder or one legal person shareholder, the minimum amount of registered capital is RMB 100,000, the shareholder shall pay the full amount of capital contribution required by the company’s articles of association at one time, one natural person can invest only to establish one one-person limited liability company.

Learn more:

Requirements of Company Incorporation

Selecting a Company Type

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