In March 2013, Shenzhen formally initiated the reform of the commercial registration system centered on the principle of "easy market access with strict regulation," comprehensively streamlining the existing enterprise establishment registration system.

The main highlights of Shenzhen's commercial system reform are as follows: Implementing a subscribed capital registration system, whereby the registered capital, method of capital contribution, amount of capital contribution, and time of capital contribution of a company may all be independently agreed upon by the shareholders, and no capital verification certificate is required for commercial registration; Abolishing the registration and approval of business scope, and changing business scope to a filing matter; Abolishing the statutory annual inspection system for industrial and commercial entities, and instead requiring companies to submit annual reports to the registration authority on their own initiative; Promoting a registration system integrating the business license, organization code certificate, and tax registration certificate into a single certificate; Establishing a unified public platform for commercial entity registration, licensing, and credit information, implementing an abnormal business operations list system, and strengthening market, credit, and social supervision.

Compared with the previous time-consuming and complicated industrial and commercial registration system, Shenzhen's commercial registration system reform has addressed many issues such as insufficient funds for entrepreneurs and slow business license processing. It has simplified procedures, improved the efficiency of government approval and commercial registration, significantly lowered the registration threshold for commercial entities, and provided entrepreneurs with a favorable investment environment.

On July 3, 2013, the State Council Executive Meeting adopted the Overall Plan for the China (Shanghai) Pilot Free Trade Zone ("the Plan"). In accordance with the Plan, the Shanghai Pilot Free Trade Zone will implement reforms in areas such as RMB capital accounts, taxation, and foreign exchange. We believe that against this background, Shanghai should follow Shenzhen's example by推行商事改革登记制度改革, lowering the market access threshold for commercial entities, and further promoting market vitality and prosperity.

In Shanghai's future commercial system reform, the following issues deserve our attention:

I. Perfecting the Legal and Constitutional Basis for the Reform of the Commercial Registration System

Shenzhen's commercial registration system reform has made significant breakthroughs in the existing industrial and commercial registration system. For example, Articles 26 and 29 of the Company Law stipulate a paid-in capital registration system, requiring commercial entities to submit a capital verification report when applying for industrial and commercial registration; the Company Law and the Foreign-Invested Enterprises Law specify that business scope is a statutory registration item, and the Regulations on the Administration of Company Registration stipulate that annual inspection of enterprises is a statutory system, with enterprises failing to conduct annual inspections as required subject to administrative penalties.

Shenzhen is a special economic zone. Pursuant to the authorization of the Standing Committee of the National People's Congress, the Shenzhen Municipal People's Congress and its Standing Committee may formulate and implement regulations on their own. However, even so, the authorization of the Standing Committee of the National People's Congress clearly stipulates that the regulations formulated by the Shenzhen Municipal People's Congress and its Standing Committee must "abide by the provisions of the Constitution and the basic principles of laws and administrative regulations." Shenzhen's current commercial registration reform has substantially broken through many principled provisions of the Company Law regarding commercial registration, and its legal and constitutional basis is still flawed. If this is the case for Shenzhen, Shanghai, which is not a special economic zone, should pay even more attention to and perfect this aspect.

II. Ensuring the Connection with Other Departmental Rules and Local Laws and Regulations

Since many departmental rules and local laws and regulations are formulated on the basis of laws and regulations such as the Company Law, after the implementation of the commercial system reform in Shenzhen, there have been disputes and confusion regarding whether the relevant rules and regulations still apply. Therefore, if Shanghai implements the commercial system reform, it must pay attention to ensuring the connection between the new regulations and departmental rules and local laws and regulations to avoid confusion and conflicts in practice.

[1] Decision of the Standing Committee of the National People's Congress on Authorizing the Shenzhen Municipal People's Congress and Its Standing Committee and the Shenzhen Municipal People's Government to Formulate Regulations and Rules for Implementation in the Shenzhen Special Economic Zone respectively