With the upsurge in foreign investors wanting to set up joint ventures (JVs) in China, we examine the points to consider when taking this investment route.

Registered capital-how much is enough?

So how much do you have to pay? Under the new Company Law, which came into force on January 1,2006, the absolute minimum capital requirements are:

For multiple shareholder companies: 30,000 yuan (article 26)

For single shareholder companies: 100,000 yuan (article 59)

However, in terms of foreign-invested companies, these figures are very misleading. Article 26 of the law also states: If any law or administrative regulation prescribes a relatively higher minimum amount of registered capital of a limited liability company, the provisions of that law or administrative regulation shall be followed.

For example, some specific cases of registered capital requirements include:

- Foreign-funded printing enterprises whose business scope is printing, packaging and decorative printing materials shall have a registered capital not less than 10 million yuan, while those printing other materials have a lower limit of 5 million yuan.

- That for a foreign-invested holding company in China shall be not less than $30 million.

- That for a foreign-invested international logistic company, $1 million.

In addition, your registered capital is also your limited liability status. So the higher it is, the more credit worthy you are. Additionally, it is important to note that if you do use this as operating capital. If you subsequently become insolvent, you need to re-inject this amount to satisfy local creditors. If you do not, you can be pursued for debts accrued in China in overseas courts.

But the real question for you is what the Chinese authorities will consider as an adequate capitalization for a specific project? This will be analyzed case by case based on the feasibility study report.

However, remember, if the government specifies a minimum "X", and you think you need "Y", and "Y" is bigger, put in "Y"--or ensure you have "Y" from a combination of registered capital and debt financing.

The amount of registered capital needed in the business depends on a number of different factors, some regulatory and some operational:

- Location (regulatory): Some regions in China apply different levels of capital requirements than others to reflect their lower or higher regional operational costs.

- Business scope (regulatory): For certain industries or services, the applicable registered capital amount can be quite high. This is sometimes used to ensure only the right standard of international business can enter the market to ensure quality of applicant--banking, for example, has a minimum of $30 million. Please note that if some existing businesses wish to expand their current scope of business, it may be a requirement to increase the amount of registered capital.

- Cash flow (operational): This is critical and often overlooked. Registered capital is also required to fund the business operations until it is in a position to fund itself. This should be catered for in the feasibility study report.

Correcting this is not just a simple matter of wiring additional funds to China. Procedures have to be followed:

 Application to increase the registered capital with the original examining and approving authority, then re-issuing of the Approval Certificate;

- Application to the State Administration of Foreign Exchange to transfer funds into China;

- Contribution of 20 percent of the increased capital in 30 days since the new Approval Certificate is issued, and subsequently obtaining the Capital Verification Report;

- Application to modify the business license with the original registering authority, then re-issuing of business license reflecting this-this is important as the registered capital amount is also the limited liability status of the business;

- Post-registration procedures of all related certificates such as state and local tax, financial registration, corporate code, etc.

The above steps take between six to 10 weeks to complete. If you have already run out of operational money, chances are by this stage you have not paid staff for two months, your suppliers, and possibly your utilities.

The author is with Dezan Shira & Associates