The promulgation of the new "Company Law" (revised in December 2023 and effective as of July 1, 2024, collectively referred to as the "New Company Law" in this text) has had a significant impact on the registration and operation of enterprises. Notably, the requirement for paid-in capital within five years has become one of the highlights of this amendment to the Company Law.
Article 47, Paragraph 1 of the new Company Law stipulates: "The registered capital of a limited liability company is the subscribed capital contributed by all shareholders registered with the company registration authority. The subscribed capital contributed by all shareholders shall be paid up by the shareholders within five years from the date of establishment of the company in accordance with the provisions of the company's articles of association."
With the implementation of the five-year capital contribution system and the interpretation of the said provision by the State Administration for Market Regulation (newly established companies must pay up within 5 years, and existing companies must gradually pay up within 3 years), many enterprises have begun to comply with the regulations regarding registered capital. Some companies have started to pay in capital, while others have opted for capital reduction. However, there are still some enterprises that are constrained by industry regulatory policies or the rigid requirements of registered capital for bidding qualifications, making it impossible for them to reduce capital. In reality, cash contributions are indeed a pressure for enterprises with high registered capital. Fortunately, the Company Law provides that shareholders can contribute in cash or in kind, as well as with intellectual property rights, land use rights, equity, debts, and other non-monetary assets that can be valued in currency and legally transferred. Many enterprise shareholders have now begun to focus on the contribution of intellectual property.
Below are the main benefits brought by intellectual property contributions:
Risk Mitigation: Through intellectual property contributions, shareholders can avoid unlimited joint liability risks when the company's operations are not going well, especially during bankruptcy and liquidation, intellectual property contributions can alleviate the shareholders' cash responsibilities.
Tax Benefits: Intellectual properties such as invention patents, utility model patents, computer software copyrights, and integrated circuit layouts can legally enjoy deferred tax policies, saving tax costs for both individual shareholders and the company.
Alleviating Cash Pressure: Intellectual property contributions can ease the shortage of corporate cash, allowing companies to invest cash into daily operations and rapidly enhance business development.
Enhancing Technological Strength: Intellectual property contributions help increase a company's technological content and strengthen its competitiveness in the market.
Optimizing Financial Structure: Intellectual property contributions can increase a company's asset scale, reduce the debt-to-asset ratio, and optimize the financial structure.
Enhancing Corporate Reputation: Intellectual property contributions can improve a company's credibility, making customers more trusting, helping the company establish a good image in the market, and increasing customer loyalty.
Bidding Competitiveness: Intellectual property contributions can increase a company's qualifications and net asset value, making it more competitive in bidding processes and securing more cooperation opportunities.
Attracting Investment: The full utilization and transformation of intellectual property can increase a company's valuation, bringing more financing opportunities, attracting investors, providing capital support for business operations, and promoting sustainable development.
Joint Ventures and Cooperation: Companies or individuals with intellectual property but insufficient funds can inject intellectual property into joint ventures to achieve marketization and capitalization of intellectual property.
Tax Advantages: Intellectual property contributions also have tax advantages, including exemption from value-added tax, deferred income tax, and amortization tax benefits.
In summary, under the implementation of the new Company Law, enterprises will place greater emphasis on the accumulation of intangible assets, reshape corporate value through intellectual property contributions, and bring opportunities for sustainable development.
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