What are the capital contribution methods stipulated by the current laws of China? According to Article 27, Paragraph 1 of the Company Law of the People's Republic of China:

Shareholders can contribute capital in currency, or they can contribute capital with non-monetary property such as physical goods, intellectual property rights, and land use rights that can be valued in currency and can be transferred in accordance with the law. However, laws and administrative regulations may not be used as property as capital contributions.

It can be seen that there are two ways of shareholder capital contribution recognized by China's Company Law: monetary contribution and non-monetary contribution.

1. What is non-monetary contribution?

Non-monetary capital contribution refers to the use of non-monetary property such as physical objects, intellectual property rights, and land use rights that can be valued in currency and can be transferred in accordance with the law.

2. The development process of non-monetary contributions

According to Article 24 of the Company Law of 1993, shareholders can contribute capital in currency, or in kind, industrial property rights, non-patented technology, and land use rights. For physical objects, industrial property rights, non-patented technologies or land use rights as capital contributions, they must be assessed and valued, and the property must be verified, and the value must not be overestimated or underestimated. The appraisal and valuation of land use rights shall be handled in accordance with the provisions of laws and administrative regulations.

The amount of capital contribution in the form of industrial property rights and non-patented technologies shall not exceed 20% of the registered capital of a limited liability company, except for special provisions of the state on the use of high-tech achievements.

According to Article 27 of the Company Law (2005 Revision), the monetary contribution of all shareholders shall not be less than 70% of the registered capital of the limited liability company. Conversely, the non-monetary contribution shall be less than 30%. However, the newly amended Company Law in 2013 has removed the restrictions on the capital contribution structure.

In 2009, the State Administration for Industry and Commerce issued the "Administrative Measures for the Registration of Equity Contributions", and since then, equity contributions can also become one of the non-monetary investment methods.

3. The conditions to be met for non-monetary capital contributions

1. Clear property rights

Article 7 of the Judicial Interpretation III of the Company Law:

If a contributor contributes capital with property that does not enjoy the right to dispose of it, and there is a dispute between the parties about the validity of the capital contribution, the people's court may refer to the provisions of Article 106 of the Property Law to determine it.

Article 8 of the Judicial Interpretation III of the Company Law:

If the contributor contributes capital by allocating land use rights or by using the land use right to create encumbrances, and the company, other shareholders or creditors of the company claim to determine that the contributor has failed to perform the capital contribution obligations, the people's court shall order the parties to go through the land change formalities or release the encumbrance within a specified reasonable period of time; if the application is not completed or lifted within the time limit, the people's court shall determine that the contributor has not fully performed the capital contribution obligation in accordance with the law.

2. Appraisal and pricing

Article 9 of the Judicial Interpretation of the Company Law (III):

If the contributor contributes capital with non-monetary property and fails to assess the value in accordance with the law, and the company, other shareholders or creditors of the company request to determine that the investor has not fulfilled the capital contribution obligations, the people's court shall entrust a legally qualified appraisal agency to evaluate the property. If the price determined by the appraisal is significantly lower than the price set by the company's articles of association, the people's court shall find that the investor has not fully fulfilled its capital contribution obligations in accordance with the law.

3. Handle the procedures for changing ownership

Article 10 of the Judicial Interpretation of the Company Law (III):

If the contributor contributes capital with housing, land use rights, or intellectual property rights that need to be registered for ownership, and has been delivered to the company for use but has not gone through the formalities for changing ownership, and the company, other shareholders or creditors of the company claim to determine that the contributor has not fulfilled the capital contribution obligations, the people's court shall order the parties to go through the formalities for changing ownership within a specified reasonable period of time; If the formalities for changing ownership have been completed during the aforementioned period, the people's court shall find that it has fulfilled its capital contribution obligations; If the investor claims to enjoy the corresponding shareholder rights when the property is actually delivered to the company for use, the people's court shall support it.

4. Penalties for false capital contributions

Article 199 of the Company Law:

If the promoter or shareholder of the company makes a false capital contribution and fails to deliver or fails to deliver the monetary or non-monetary property as a capital contribution on time, the company registration authority shall order correction and impose a fine of not less than 5% but not more than 15% of the amount of the false capital contribution.

5. How to solve the defects of non-monetary contributions

On the one hand, the defect of capital contribution is false capital contribution, and on the other hand, there are procedural defects.

1. False capital contributions

When there is a capital contribution failure, the shareholders usually make up the capital contribution with currency and verify the capital compounding.

2. Program flaws

• When there are procedural defects, such as not handling the transfer of property rights, the relevant procedures should be completed as soon as possible and supplementary capital verification should be carried out.
• If there is no appraisal, evidence of fair valuation of non-monetary assets must be provided, such as public quotations of the same or similar assets, appraisal reports referred to by the original capital contribution valuation, etc.

Epilogue

In practice, non-monetary asset contributions are more complex than monetary contributions, and capital contribution defects such as false capital contributions and false capital contributions are common. Therefore, it is necessary to understand the relevant legal provisions of non-monetary capital contributions, perform the necessary procedures, and be vigilant against the risks caused by defects in capital contributions, in order to better enjoy the rights of shareholders.