Can a Single-Member LLC Reduce Its Charter Capital?

Question:

I have a question about the regulations on changing the charter capital of a single-member LLC as follows:

Previously, the 2005 Enterprise Law stated that a single-member LLC could not reduce its charter capital. However, I no longer see this regulation in the 2014 Enterprise Law. So, I would like to ask, under the current regulations, can a single-member LLC reduce its charter capital? I look forward to receiving your advice.

Thank you very much.

Answer:

Thank you for your question. We advise you as follows:

The regulations on changing the charter capital of a single-member LLC under the 2014 Enterprise Law have changed compared to the 2005 Enterprise Law.

Article 76, Clause 1 of the 2005 Enterprise Law stated:

1. A single-member LLC is not allowed to reduce its charter capital.

In the 2014 Enterprise Law, this regulation was removed and replaced with the following provision in Clause 1, Article 87:

1. A single-member LLC may change its charter capital in the following cases: a) Return a portion of the contributed capital to the owner of the company if it has been in continuous business operation for more than 2 years since its registration and ensures full payment of all debts and other financial obligations after returning the capital to the owner;

   b) The charter capital is not fully and timely paid by the owner as prescribed in Article 74 of this Law.

Based on the above provision, a single-member LLC can reduce its charter capital if the owner withdraws capital from the company, provided the company has been in operation for more than 2 years and has ensured that all debts are paid.