Note: More and more Chinese businesses are setting up in Singapore, whether for trading, shipping, hotpot restaurants, artificial intelligence or fintech. Singapore’s convenience, low tax burden, international reputation and open, business-friendly approach continue to attract entrepreneurs from around the world.
When incorporating a company, one question concerns almost everyone: How much registered capital is appropriate?
Because the company systems and laws differ, Singapore’s rules on registered capital are not the same as China’s. This article compares the practical approaches in the two countries and flags issues and risks for cross-border entrepreneurs.
Author: Zhang Jingxinyue, Lawyer
1 Registered-Capital Requirements for Companies in China
(1) Key concepts
- Registered capital (also called statutory capital) is the total amount of capital subscribed by all shareholders or promoters under the company’s articles of association and registered with the company-registration authority.
- Paid-up capital is the amount actually received by the company from its shareholders. For example, if shareholders subscribe to RMB 1 million but pay only RMB 500,000, the latter is paid-up capital.
- Subscribed capital is the amount promised to the registration authority. Shareholders may agree when to pay it, and the payment schedule is recorded in the articles of association, provided it does not extend beyond the company’s operating term.
Since March 1, 2014, China has replaced the paid-in registration system with a subscribed-capital registration system.
(2) How does the subscribed-capital registration system work?
- The system removes specific requirements on the proportion of initial contributions, the deadline for full payment and the proportion of cash contributions. Shareholders may agree on the amount, form and timetable of their contributions and record them in the articles of association.
- The registration authority no longer verifies capital when a company is incorporated or increases capital, so an accounting-firm capital-verification report is not required.
- Paid-up capital is no longer a registration item. When shareholders make payments, they do not need to register a change after each instalment.
- The articles of association do not need to set out a detailed schedule; in practice, they may state broadly that capital will be paid in instalments during the company’s operating term.
(3) What forms of contribution are available? Must contributions be in RMB?
Under the Company Law of the People’s Republic of China, foreign investors may contribute cash, or non-cash assets that can be valued in money and legally transferred, such as equipment, intellectual property and land-use rights.
Cash contributions may be made in foreign exchange or in RMB lawfully obtained in China. The registered capital of a foreign-invested enterprise may be denominated in RMB or another freely convertible currency. Non-cash assets must be appraised, verified and legally transferred.
Article 27 of the Regulations on the Administration of Company Registration also provides that shareholders may not contribute labour, credit, a natural person’s name, goodwill, a franchise right or encumbered property as capital.
Points for foreign investment in China:
- After the Foreign Investment Law came into force on January 1, 2020, the three foreign-invested-enterprise laws were repealed. Their former restrictions on contributions in kind and intellectual property therefore no longer apply.
- The Foreign Investment Law applies the Company Law equally to foreign investment. The Company Law does not use the concept of “total investment”, but the 1987 Interim Provisions on the Proportion between Registered Capital and Total Investment of Sino-Foreign Joint Ventures have not been expressly repealed. The foreign-investment reporting form still contains a “total investment” field, and the registration process still asks for it. Companies should therefore confirm with the local market-regulation authority whether the relevant rules remain applicable.
(4) How much registered capital is appropriate in China?
1 Is RMB 100 million acceptable? — Do not enter an arbitrary amount
Many start-ups enter a very high figure because they believe that, under the subscribed-capital system, no payment is required and a higher figure makes the company look stronger when signing contracts or bidding. In fact, removing the minimum-capital requirement and adopting the subscribed-capital system is intended to reduce the cost of starting a business, not to encourage arbitrary capital figures.
2 Can payment be deferred for 100 years? — Do not choose an arbitrary timetable
The law does not expressly prohibit a long subscription period, and a shareholder’s obligation can be transferred to a new shareholder. However, a period that extends beyond a shareholder’s working life can make the company look like a shell. The subscription period should therefore not simply be made as long as possible.
3 Under the subscribed-capital system, overstatement still creates tax
The registration authority does not charge a registration fee, but the tax authority levies stamp duty at 0.05% of the registered capital. For example, RMB 10 million of registered capital produces RMB 5,000 of stamp duty. The tax is still payable even if capital has not been paid in, and the company may need to pay it before obtaining a tax-clearance certificate for deregistration. At the same time, registered capital should not be unrealistically low: “incorporating a company with one yuan” is largely theoretical.
4 Principles for determining registered capital
- Act within your means and determine the amount and payment commitment according to business needs.
- Industry practice is a useful benchmark. Different sectors have different capital requirements; entrepreneurs can search China’s National Enterprise Credit Information Publicity System for comparable companies.
- Start modestly and increase later. Capital can be increased as the business expands and the company is able to assume greater responsibilities.
5 Excessively high subscribed capital creates greater legal risk
Subscribed capital does not mean that capital never has to be paid; it only allows a temporary deferral at the start. Shareholders remain liable up to the amount they subscribed. If a company enters liquidation with RMB 1 million of unpaid debt, a company with RMB 500,000 of registered capital generally exposes its shareholders to RMB 500,000 of contribution liability, while a company with RMB 1 million of registered capital may require the full RMB 1 million to be contributed.
Although the minimum capital requirement has been removed, the 2019 Minutes of the National Courts’ Civil and Commercial Trial Work Conference note that using very little capital for an obviously overambitious business may show a lack of genuine intent and an abusive attempt to shift risk to creditors. If a company’s creditors are seriously harmed, a court may require shareholders to bear joint and several liability.
Registered capital that is too high, combined with insufficient shareholder capacity, can therefore create unnecessary exposure. The amount should reflect both the business and the shareholder’s ability to bear risk.
2 Registered-Capital Requirements for Companies in Singapore
Singapore company forms include sole proprietorships, partnerships, limited liability partnerships, limited partnerships, private companies limited by shares (Pte. Ltd.) and public companies (Ltd.). The most common form is the private company limited by shares.
Every private company must register issued share capital and paid-up capital. Issued share capital is the capital issued to shareholders and may be as low as S$1. Paid-up capital is the capital actually paid to the company and may be as low as S$0.
When a Singapore private company is incorporated, ACRA does not require the capital to be fully paid and does not conduct a capital verification. Non-payment does not prevent incorporation. Nevertheless, to demonstrate the company’s substance and creditworthiness, registering paid-up capital at zero is generally not recommended. Where funds permit, the issued capital should be paid in full or in part.
(1) How much registered capital is appropriate in Singapore?
The amount is mainly a business and risk decision and can be assessed from two perspectives.
1 Internal discussions
- The shareholders and directors should discuss how much the shareholders are willing to contribute and how much the directors need to launch the business.
- If the company is being incorporated for a particular project, estimate the initial investment.
- Consider the potential amount payable to creditors if the company is later wound up and the shareholders’ exposure to funding risk.
2 External requirements and restrictions
- A large corporate customer may require suppliers to have a minimum registered capital.
- A tender may set a minimum capital requirement for eligibility.
- If a founder plans to apply for a Singapore pass using the company, the relevant pass may have an expected minimum capital level.
The appropriate amount therefore depends on the company’s operations. For a simple international-trading business with no external capital requirement, a few thousand Singapore dollars may be sufficient.
(2) Must registered capital be denominated in Singapore dollars?
Singapore’s currency is the Singapore dollar (SGD). Registered capital does not have to be denominated in SGD. Singapore permits considerable flexibility: major currencies such as USD, EUR, RMB, HKD and JPY may be used, and one company may have capital in more than one currency. Even so, using SGD is generally recommended.
(3) Is there a minimum paid-up capital?
There is no general minimum; paid-up capital may be zero. Some regulated industries, however, have higher minimums, for example:
- Travel agencies: S$100,000 when accommodation is provided in Singapore, or S$50,000 when only travel services are provided;
- Accounting firms: S$50,000;
- Insurance intermediaries: S$300,000;
- Financial businesses, including banks: substantially higher requirements; professional advice should be obtained.
(4) Are there restrictions on the use of registered capital?
Registered capital can be understood as the start-up funds invested by shareholders for the company’s business. It may generally be used for operations, including office supplies, raw materials, logistics, customs clearance, business travel and labour costs. Use remains subject to the company’s constitution. Misuse or use outside the constitution may be unlawful and expose the responsible person to prosecution.
(5) What are the benefits of higher paid-up capital?
Paid-up capital reflects a company’s substance and creditworthiness. If the company becomes insolvent, its paid-up capital, together with its other remaining assets, is available to repay creditors. Higher paid-up capital may:
- Improve the terms available for debt financing;
- Provide an additional financing route alongside equity financing, such as loans or bonds;
- Help the company obtain lower interest rates and avoid charges over its assets. Compared with a company with only S$1 of paid-up capital, creditors may feel more comfortable that they can recover funds from a better-capitalised company;
- Automatically make a Singapore-incorporated company with paid-up capital of at least S$500,000 a member of the Singapore Business Federation (SBF), giving access to networking and other activities;
- Help a start-up cover roughly one year of costs for directors, shareholders or employees applying for work passes, which may also support the application.
(6) Can registered capital be increased?
A Singapore private company may increase its share capital at any time after incorporation. The administrative process is simple; the increase is often completed within two to three working days after filing, without capital verification.
The process is:
- Shareholders and directors agree on the additional share capital and allocation, then instruct the corporate secretary to prepare the resolutions and documents;
- After the documents are signed, the statutory secretary files them with ACRA.
Two points require attention:
- If a new shareholder joins, provide the shareholder’s passport or identity document and proof of address so the secretary can prepare and retain the statutory documents.
- Under the Companies Act, the increase must be filed with ACRA within 14 days after it is approved and the documents are signed.
An increase in capital reflects greater shareholder commitment and may signal stronger prospects. Singapore’s business-friendly administration provides a relatively convenient process for entrepreneurs.
(7) Can registered capital be reduced?
In certain circumstances, ACRA permits a private company to reduce its share capital.
There are two common reasons:
- The company has excessive capital. Maintaining it may leave capital idle, reduce capital efficiency and increase the burden of distributions.
- The company has suffered serious losses. The gap between nominal capital and actual assets may become so large that capital no longer demonstrates the company’s strength, and shareholders receive no return.
The procedure is much stricter than an increase because the law seeks to prevent companies from using limited liability to evade debts. To protect creditors and manage commercial risk, authorities may require all creditors to be notified and to consent; failure to notify a known creditor may lead to supplementary liability or even invalidate the reduction.
Under Singapore’s Companies Act, a private company must pass a special resolution and follow one of two routes:
- Obtain approval from the Singapore court; or
- Meet the statutory requirements, including:
- convening an extraordinary general meeting (EGM);
- each director satisfying the “solvency requirements” under section 78B of the Companies Act;
- amending the company constitution;
- collecting old share certificates and issuing new certificates; and
- passing the special resolution within 15 days after the solvency requirements are satisfied, to prevent a change in solvency.
“Solvent” means able to pay debts as they fall due. “Insolvent” means unable to pay debts as they fall due.
Capital reduction is relatively complicated and may take two to three months. Accounting and legal advisers may be needed, which increases the cost.
Conclusion
In summary, the laws governing registered capital in China and Singapore are different, but the basic principle is similar: except in certain regulated sectors, there is no rigid minimum amount and capital may be subscribed rather than paid in immediately. At incorporation, it is generally unwise to set capital too high or too low. The amount should reflect the company’s actual business needs; capital can be increased later if necessary.
Appendix:
- To search Chinese company information, use the National Enterprise Credit Information Publicity System to check registered capital, business scope, legal representative, shareholders and litigation.
- To search Singapore company information, use ACRA’s BizFile+ to obtain registered capital, business scope, shareholders and directors.
For further advice on Singapore company incorporation and compliance, please contact the Zhongxin Legal News professional consulting team.
— Review: To be confirmed by backend
This article is for general information only and does not constitute formal legal advice.
This article is general information and not legal advice. Specific matters require assessment by appropriately qualified professionals.