Social Sciences in China (Chinese Edition)

No. 6, 2024

Authorized Capital System Operating Mechanism in China

(Abstract)

Fu Qiong

China’s shift from a subscribed capital system to an authorized capital system signifies a profound theoretical advancement in corporate capital regime reform, signaling a new era in legal governance for joint-stock company financing. Central to this system is balancing corporate financing autonomy with shareholder interests—both incumbent and prospective. By empowering boards through articles of association or shareholder resolutions to issue shares, this framework not only streamlines company establishment but also redefines governance structures within corporate financing, underscoring board decision-making prerogatives. Integrating authorized capital with class shares and a paid-in approach caters to diverse investor preferences, fostering novel capital transaction channels between corporations and shareholders while mitigating registered capital dilution concerns. To balance and protect the interests of both new and existing shareholders under the model where shareholders have preemptive rights, it is essential to strengthen the fiduciary duties of directors. This should be supported by a judicial review of the primary purposes of new share issuances and legal remedies for any issuance defects.