Capital contributions using equity are welcome

By Phil Taylor.

There's not much cash around these days, and companies are desperate to find other ways to make acquisitions. Making capital contributions using equity held in another company – equity contribution for short – provides one such way. The advantage of such an arrangement is that it lets a company that is short on cash use already-held shares to contribute to another company.

China has now formalised this form of capital contribution, with the promulgation of the Measures for the Administration of the Registration of Capital Contribution in the form of Equity (股权出资登记管理办法). The rules were issued by the State Administration for Industry and Commerce (SAIC) and took effect on March 1 2009. The administration seems keen to promote the measures as a means of helping companies fight the downturn: the website of the Hong Kong Trade Development Council quotes an SAIC official as saying that “equity contribution, as a new form of capital contribution, will help expand capital contribution channels and ease financial difficulties for enterprises”.