Page 15 - Doing Business in China

STARTING AND MANAGING A BUSINESS

INCORPORATION OF BUSINESS ENTITIES
Below, we outline the main considerations foreign investors need to take into account when setting up a company
in China, using the incorporation of a limited liability company (“LLC”) as an example�

REGISTERED CAPITAL & CAPITAL CONTRIBUTION
Registered capital (“RC”) refers to the total amount of capital that shareholders are required to inject into the
company� This amount must be stated in the company’s articles of association (“AOA”) and will be recorded on the
company’s business license�

In accordance with the “Company Law of the People’s Republic of China (Revised in 2023),” which came into effect
on 1st July 2024, the registered capital shall be fully paid up within (5) five years from the date of establishment of
the company�

Shareholders can make capital contributions in the form of cash, physical assets, intellectual property, land use
right, equity, etc� There is no minimum registered capital requirement for most business activities, except for
certain regulated industries (e�g�, banking, insurance, and securities)� However, it is recommended that the initial
registered capital should cover the operating expenses of the company for 1-2 years, including office rental,
employee salaries, etc� If the company experiences cash flow problems in the future, shareholders may decide to
increase the capital�

TOTAL INVESTMENT
For a foreign-invested company, another concept related to registered capital is “Total Investment” (TI), which
should also be considered before incorporation� Both RC and TI must be stated in the company’s AOA� The ceiling
for loan financing (by a bank/shareholder) is limited to the difference between the TI and RC, and is also subject to
the following guidelines on the ratio�

TI Minimum RC requirement according to the TI
TI ≤ US$3 million 70% of TI

US$3 million < TI ≤ US$10 million 50% of TI and not less than US$2�1 million

US$10 million < TI ≤ US$30 million 40% of TI and not less than US$5 million

TI > US$30 million 1/3 of TI and not less than US$12 million

COMPANY NAME
The first step in establishing a company is choosing a name� A well-chosen company name plays a crucial role in
establishing the company’s image and building its brand�
In China, the proposed company name must be submitted to the relevant authorities for pre-approval� The basic
structure for naming a company is: City + Trade Name + Industry + Organisation Form� The sequence of the other
three elements can vary, but the organisation form remains last�

For example, if a foreign investor plans to establish a limited company in Shanghai engaged in import & export
business, with “ABC” as the trade name, the three naming options could be considered:

1� Shanghai ABC Trading Co�, Ltd�

2� ABC (Shanghai) Trading Co�, Ltd�
3� ABC Trading (Shanghai) Co�, Ltd�

Doing Business in China 2025 15