Verification of Registered Capital in Equity Transfer

According to the PRC Company Law  (中华人民共和国公司法) (Company Law), the investors of a limited liability company shall specify the registered capital of the company in the shareholders' agreement and the company's articles of association. The registered capital shall be contributed by the shareholders pursuant to the shareholders' agreement and the company's articles of association. In addition, a CPA registered in China shall verify the contribution of registered capital so that the company can apply for a business license at the State Administration of Industry and Commerce (SAIC) or its branches. The purpose of verification of registered capital is to assure the equity investment into the company from the investors and to protect legal rights of the potential creditors the company may have.

The Company Law has no specific stipulations on the verification of registered capital in an equity transfer transaction of a limited liability company. According to the context, it is implied that no verification of registered capital is required in an equity transfer transaction. Under the Company law, shareholders of a limited liability company have an obligation to contribute their respective proportion to registered capital and hold equity of the company once completing contribution of registered capital. Before the transferring shareholder transfers equity deriving from its contribution of registered capital to a third party, the transferor shall have already contributed its proportion of the registered capital to the company. Therefore, neither party has an obligation to contribute the registered capital to the company again.