The reform of commercial registration
Fu Weigang, executive president of Shanghai Institute of Finance and Law, thinks that the abolishment on the limitation on registered fund and business scopes is the light spot of the reform. It greatly reduces time and transaction cost, improves market efficiency, and contributes to the improvement of China’s entrepreneurial environment and investment environment.
【Background】
From March 1st, the reform on commercial registration has been carried out in the scope of the whole city in Shenzhen and Zhuhai. It changes from “examination and approval” to “approval registration”. The business scopes of commercial subjects no longer serve as registration items, but are changed into a matter of records. The new version of business license no longer records business scopes, but the public may inquire through the government’s information announcement platform. The new version of business license no longer records “registered capital and paid-up capital”, and applicants do not need to submit the certificate of capital verification. Besides, the commercial subject only needs to submit the annual report to the commercial affair registration institution, and there is no need to carry out the annual inspection. The annual reports include the registration items, those of records, the paid in registered capital, the annual balance sheet and income statement of the commercial subject.
Most people indicate that such a measure overturns the original approval system. But some people think that the reform measure has caused almost no threshold for commercial registration, it may lead to the increase of shell companies, and it may even encourage lawbreakers to swindle in the name of setting up a company.
How to look upon the significance of this reform on commercial registration? What are its roles on the future development on China’s market economy?
Fu Weigang, executive president of Shanghai Institute of Finance and Law, thinks that the abolishment on the limitation on registered fund and business scopes is the light spot of the reform. It greatly reduces time and transaction cost, improves market efficiency, and contributes to the improvement of China’s entrepreneurial environment and investment environment.
“In the past, it usually took three to five days only to check the name of a company. Besides, it needs various procedures to examine and verify the registered fund, provide capital verification report by an accounting firm and tax registration etc.” Fu said, “The numerous administrative approval procedures give birth to many registration agencies that handle license matters for others with the cost of about 3,000 to 5,000 yuan. Yet the procedures are much simpler abroad. For example, in the US, there is no big institution that is similar to the industrial and commercial bureau. In some states, there is only one office under the municipal government that handles such matters. If the procedures are handled directly in the municipal government, it takes only one or two days, and the registration fees are also very cheap.”
Fu Weigang thinks that in many cases it is not necessary for the government to limit the access of enterprise like using registration funds etc. The limitation and approval system is actually the endorsement for the civil acts of the registration enterprise, but after the reform, enterprises shall independently bear all responsibilities.
For the unloosening of the registered fund, Fu thinks that it breaks down the superstition on capitals, at the same time it lowers down the admittance threshold for starting a business. He says that, “it is a very interesting phenomenon, many people judge how big an enterprise can do business depending on how much registered fund it has. But in many cases, the innovation capacity and the future development scale of a company has no relationship with how much registered fund a company has. For example, Google and Apple all develop from a warehouse and garage. At the beginning of the establishment, there is not much registered fund, but it does not obstruct them to become outstanding enterprises in their industries after five or ten years.”
Fu Weigang says that, now it is the Internet times, the communication is convenient and the traffic is advanced. If it is difficult to register a company in one country, an enterprise will go to other places to start a business. For example, many companies in the world choose Hong Kong and British Virgin Islands due to tax avoidance, causing the tax revenue outflow of the countries where the companies locate in. Several China’s largest scientific and technical corporations do not register in the mainland, for example, Baidu registers in Cayman Islands.
Fu Weigang points that the new system pilots put forward higher requirements for social credibility. In the past, in order to prevent the swindle of shell companies, people might check the companies’ business licenses and registered funds. In the future, there is no information on this aspect, so higher requirements are put forward for the credibility of enterprises.
But on the other hand, Fu Weigang emphasizes that even in the past, the limitation system on registered funds itself also caused many credit counterfeits. For capital verification, many companies all looked for agencies to borrow funds for passing the procedure, and after capital verification, the funds were withdrawn. But this reform has just restored the true commercial environment. At the same time, the lowering of threshold makes starting a business simpler. Of course, those enterprises with bad management also “die” more easily. The new policy reduces the initial stage investments for enterprises, and it avoids unnecessary waste.
“Viewing from this angle, the market access threshold is reduced. Its significance is equivalent to the year 1992 when ‘all people went into businesses, and all people set up companies,” says Fu.
For liberalizing business scope limitation, Fu Weigang thinks that it is very necessary. “The less limitation the better”, in the past many business scopes needed the administrative approval, and there are risks of corruption and rent-seeking.
However, though there are significant breakthroughs of this reform, Fu Weigang thinks that there still exist some regrets. Other departments that are closely related with enterprise should also put forward supporting measures to release market limitation and reduce the threshold for starting a business. For example, compared with Chinese industrial and commercial authorities, enterprises make contacts with tax departments more frequently; therefore, the tax department needs more reforms to simplify the approval process.
Caixin Online | Reporter: Zou Zijian | 2013-3-5
