Dear Mr Eagle,

We are in negotiations with a potential Chinese joint venture partner. However, we are not clear as to the rules regarding registered capital contributions. Would you please give us an overview of this area of law?

Dear Sir/Madam,

As it appears you are doing, it is best to ensure that you are fully aware of the law prior to negotiating with any potential partner.

Each industry in China will have a minimum registered capital requirement (this minimum capital is dictated by Chinese company law). For example, the minimum registered capital for a manufacturing enterprise is 500,000 yuan (US$61,728). This can be contributed in cash, or any other type of asset, including intellectual property. However, the valuation for IP cannot, generally, exceed 20 per cent of the total registered capital for the whole venture.

In order to obtain tax benefits, the foreign party must obtain a 25 per cent interest, which will be relevant to registered capital if you select an equity joint venture. Interestingly, we have found that many Chinese partners prefer establishing a venture with higher than minimum registered capital, so this may become an issue for negotiations.

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(China Daily 03/17/2006 page18)