Meaning
Statutory provisions in Chinese corporate legislation define the mandatory procedural steps required when an enterprise decreases its registered capital. Company Law Article 224 establishes the formal requirements for legal capital reduction and creditor notification across commercial entities. Governance bodies must prepare balance sheets and financial inventories before passing shareholder resolutions on capital decreases.
This legal framework prevents premature capital extraction by equity holders at the expense of external liabilities.
Statutory Requirement
Corporate balance sheet preparation forms the mandatory starting point for legal capital adjustments. Under company law article 224, management teams compile detailed asset inventories before presenting capital decrease proposals to voting shareholders. Formal approval requires a two-thirds majority vote during general meetings.
Procedural Mandate
Direct notification and public notice run concurrently once shareholder consent is recorded. Provisions under company law article 224 mandate written notices to known creditors within ten days alongside public system announcements within thirty days. Counterparties hold thirty days from direct notice or forty-five days from public notice to request debt settlement or security guarantees from the entity.
Decreases proceed to official registration only after all demanding creditors receive full satisfaction or security agreements.
Operational Limit
Capital distributions to shareholders remain strictly prohibited prior to final registration updates with local market supervision branches. Company law article 224 restricts equity payouts, preventing capital flight before public registries reflect reduced liabilities. Violations expose corporate officers to personal administrative fines and financial restitution liabilities.
