Basic financial knowledge

Author: Zhang Lingshan
Publisher:
Publish Date: 2007-01-01
Features:
1. Capital Fund System
(1) Capital Fund
Capital fund is the registered capital that enterprises absorb from investors to engage in business operations, serving as the foundation for their production and business activities. The relationship between registered capital and capital fund varies across countries, with differing management requirements. Broadly speaking, there are mainly two management methods:
(1) Actual Capital System. This requires the registered capital of a company to match the actual funds it has received, otherwise the company cannot be established.
(2) Authorized Capital System. The registered capital can exceed the actual capital amount received by the company, as long as the due contribution is paid, the company can be established, and the unpaid portion is entrusted to the board of directors to raise funds after the company is formed. China has consistently adhered to the principle of consistency between actual capital and registered capital, so it stipulates that the capital fund of a company refers to the registered capital registered with the administrative department for industry and commerce. Companies must have a legally required capital fund when establishing. The so-called legally required capital fund refers to the minimum amount of capital that the state law stipulates companies must raise when establishing. In other words, companies must have a minimum threshold of capital to be approved for establishment. Theoretically, this minimum amount is usually specified in the company law. According to the different nature of the investing entity and management requirements, the capital fund of a company can be roughly divided into four categories:
(1) State Capital Fund. This refers to the capital fund formed by state-owned assets invested by government departments or institutions authorized to represent the state in the company.
(2) Legal Person Capital Fund. This refers to the capital fund formed by other legal entities investing their legally disposable assets in the company.
(3) Individual Capital Fund. This refers to the capital fund formed by individuals or internal employees of the company investing their legally owned property.
(4) Foreign Capital Fund. This refers to the capital fund invested by foreign investors and investors from Hong Kong, Macao, and Taiwan regions of China.
Companies can raise capital funds through state investment, joint financing by all parties, or issuing stocks, and must meet the following requirements:
(1) The capital funds raised by the company must be verified by a Chinese-registered accountant and a capital verification report must be issued, upon which the company issues contribution certificates to investors.
(2) The contribution of intangible assets (excluding land use rights) of investors cannot exceed 20% of the company's registered capital; in special circumstances, with special approval, the maximum cannot exceed 30%.
(3) The company is not allowed to absorb the contribution of assets of investors that have already been established with security interests or leases.
(4) Capital funds can be raised either once or in installments. If raised in one go, the funds must be fully raised within 6 months from the date the business license is issued. If raised in installments, the final installment must be paid within 3 years from the date the business license is issued, with the first investor's contribution not less than 15% and paid within 3 months from the date the business license is issued.
(2) Capital Fund System
The capital fund system refers to the system established by the company to raise, manage, use, and distribute the capital invested by investors. The establishment of this system aims to protect the interests of creditors and investors. The capital fund system is reflected in three principles of capital:
(1) The principle of capital determination, which means the total capital must be clearly stated in the company's articles of association.
(2) The principle of capital sufficiency, which includes the company not issuing shares at a discount and setting aside retained earnings from profits.
(3) The principle of capital constancy, which means capital cannot be arbitrarily increased or decreased.