The Impact of the Registered Capital Requirement Reform in China
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The original purpose of the reform is to encourage entrepreneurship and innovation. However, there are many problems, for example, shareholders may increase their registered capital aimlessly, and file for bankruptcy or transfer their shares before the final investment deadline comes. Chinese society has formed a long-term requirement for registered capital, and it is generally believed that registered capital is an indicator of corporate credit. Even after the reform of the company law, many companies still estimate the risks of transactions by looking at the registered capital of counterparties, because the asset quality and/or reputation of counterparties cannot be easily assessed. It is unrealistic to rely on shareholders' self-discipline to protect creditors' interests before establishing a complete personal credit history system. On the contrary, the current regulatory framework should be revised. At the company level, first of all, if shareholders arrange a large amount of registered capital, they should provide guarantee for the unpaid part. Companies should disclose important information to creditors and creditors' committees in a timely manner. For creditors, they should also conduct due diligence on the information disclosed.
Registered capital, Reform, Credit system, Creditor