Draft company law relaxes terms for individual investors

The authorities have solicited public opinions on the revised draft of the Company Law on the National People's Congress website, soliciting public opinions after it was deliberated at the 32nd session of the 13th NPC Standing Committee.

The draft has many new provisions, with the one facilitating the establishment of companies by individuals attracting the most attention. Two remarkable changes have been made in this regard.

The first one relaxes the provisions for establishing one-person limited liability companies and allows the setting up of one-person joint stock limited companies. The second allows equity and bonds to be used as a form of capital contribution to a company.

The existing Company Law, after being amended in 2005, already allows the establishment of a single-individual limited liability company. But the lawmakers have removed the special section and some regulations in the revised draft, showing their liberal attitude toward the establishment of single-individual companies.

The provision that allows the establishment of a single-individual joint stock company has no minimum paid-in capital requirement after the reform of the capital subscription system.

Prior to 2006, setting up a joint stock company required capital of not only 10 million yuan ($1.57 million), but also the approval of the provincial-level government. In 2013, the minimum registered capital required to set up a joint stock company was reduced to 5 million yuan, and the clause of government approval was removed.

Limited liability companies were traditionally considered more suitable for individual investors, especially those who wanted to start a one-person company, but with the revision of the Company Law, a person can establish more types of companies, as well as invest in other companies.

As a matter of fact, the diversification and non-monetization of corporate capital contribution has become a trend in recent years, as have stock exchange and other forms of equity capital contribution at the corporate level. The revised draft in essence accords legal cover to such changes.

The further lowering of the threshold for establishing companies will help promote innovation in the market.

However, it should be noted that making it easier to set up a company and provide capital does not make it easier to make money. Investments are always fraught with risks, and so those wanting to set up companies should strictly abide by the law and relevant regulations.