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Can You Trust the Registered Capital on a Chinese Business License?

by Matt Slater April 28, 2014

Can You Trust the Registered Capital on a Chinese Business License?

The Registered Capital field on a Chinese business license is often used to make a quickfire assessment of the size of the company, or how much it has grown since its founding. It can also be used as a crude indicator of whether a company is a trading company or a supplier with the physical means to offer the products it claims to.

Registered Capital

Despite it only ever being a rough guide, there is clearly some trust attached to the Registered Capital field in a Chinese company’s official registration. In general, more capital suggests a more sizeable operation. In the eyes of some, that also suggests a more reliable one.

Capital Comparisons

Because of this perception, it’s clearly in a Chinese company’s interests to register the largest amount of capital that it can, and to pay it up. This is likely to be persuasive with potential clients, and of course it never hurts to intimidate the competition.

At the other end of the spectrum, very low registered capital, or an amount that is implausible for what the company claims to do may reveal scammers or dubious operations. A single person working from their flat with a laptop could feasibly pretend to be a supplier whilst operating as a middle-man, but low registered capital would give the game away.

Paying to Have More Capital Registered

However, it is in fact possible to simply pay a fee in order to have the capital for a company registration massively increased. This is arranged through business consulting companies who use their own, real capital for the process. Once the registration and paying up is complete, the service provider takes back their capital and uses it for the next client.

This is a legal grey area. Strictly speaking, the company being registered is allowed to have the ‘support’ of another organisation who contributes to it. Similarly, there can be no law to prevent the money going back to its origin after some time as passed. Presumably, though, the operation does not fall within the spirit of the law.

How Much Does It Cost?

There is of course a fee for this maneuver. Our researcher got in contact with a leading Chinese business consulting firm in Shanghai, whose name we won’t reveal here, and discussed what it might cost if we wished to artificially increase our capital registration.

  • To register 1m RMB (~160k USD), the client company pays a total of 6.5k RMB (~1k USD). That’s a 153x boost.
  • To register 2m RMB (~321k USD), the client company pays a total of 11k RMB (~1.8k USD). That’s a 181x boost.
  • To register 5m RMB (~800k USD), the client company pays a total of 24k RMB (~3.8k USD). That’s a 208x boost.

This is clearly more cost-effective for the client company than registering real capital. They even get more value out of it the greater the deception is. Further, the consulting firm our researcher spoke to said that the length of registration can be extended to 30 years when any of the above schemes are paid for.

For around 1000 USD, which is likely available to anyone registering a company, the client can give the impression of being a much larger operation with much greater investment backing it up. Caveat emptor!

Restrictions Dropped on Registered Capital

This practice was more significant in the past when there were minimum limits on all company registrations in China. That set-up meant that these artificial capital registrations allowed companies to register who otherwise might have been excluded from registration entirely.

Recently, a lot of these restrictions were removed. Now, the decision about how much capital its worth registering is up to the individual company.

Clearly there is still potential benefit in giving an impression of greater funding, and the services are still available. In any case, it helps to be aware that the registered capital field on the business license or registration you’re looking at doesn’t necessarily represent real funds that the company ever had on hand.

Verify a Business License

When the registered capital on a Chinese business license appears to be very large it might also be possible that the business license you are viewing has been “photoshopped” – verifying Chinese company documentation is always a good idea and China Checkup offers a business license verification service.




Matt Slater
Matt Slater

Author

Hi there, I'm Matt, the founder of China Checkup. Originally from the UK, I am now based in Brisbane, Australia.

Frustrated by the scarcity of concise, high-quality and timely information about Chinese companies, I setup China Checkup whilst living in Shanghai in 2013.

My team are proud that China Checkup's company verification reports have now helped thousands of clients from all corners of the world to do business in China more safely.

  

 


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