Corporate establishment in China for foreign enterprises is possible for only three main business structures. This includes; Wholly Foreign-Owned Enterprises (WFOEs), Joint Ventures and Representative Offices.
What are WFOEs and what are the benefits?
WFOEs have 100% of shares owned by foreign (not Chinese) parties with limited liability, offshore or holding companies. Different industries have different registered capital requirements (equity and investment requirements) for WFOEs. WFOEs can also issue invoices to their customers in RMB and receive RMB revenues, they can convert RMB profits to US dollars for remittance to their parent company outside China, employ staff directly within China, and protect their own intellectual know-how technology and trademark.
There are two main types of Joint Ventures available in China. Equity Joint Ventures (EJV) and Co-operative Joint Ventures (CJV).
- An EJV is an independent legal entity with limited liability. Profit and risk sharing in an EJV are proportionate to the equity of each partner in the EJV.
- A CJV’s profits are allocated according to the terms of the co-operative venture contract rather than the proportion of their input in the registered capital, which offers greater structural flexibility over an EJV.
A RO is the one that represents the liaison organization in the domestic business of the mother company, it is not an independent legal person’s entity, and can not carry on the business activity of direct profit nature. Permitted activities include establishing and arranging contacts, rendering advice, preparation of market studies, and general collection of information and liaising with authorities and business partners. Representative Offices may not bill clients or sign contracts. In practice, some Representative Offices exceed their business scope and thus leave themselves open to negative legal ramifications.
Corporate Establishment can be complicated in China; however, industries can be split in to the following categories to determine the ease of setting up a legal entity for foreign investors:
- Prohibited – Railway, Shipping, Freight, and Oil & Gas field ownership. In such industries it is common for foreign investors to establish entities that can provide services to Chinese owners.
- Restricted – (This applies to Joint Ventures only) Mining, Pharmaceuticals, Oil & Gas, and Tobacco. In a joint venture within China, the Chinese party must hold the majority.
- Encouraged – Consulting, Manufacturing and FICE (Foreign Invested Commercial Enterprises) i.e. trading. This applied to Wholly Foreign-Owned Enterprises (WFOEs) and some Joint Ventures.
How LehmanBrown can Help
When setting-up and maintaining operations in China, it is extremely important that companies fully understand and comply with PRC regulations due to the links between the business and political environment. We keep up to date with the underlying policy trends and relevant regulations, which allows us to assess the impact on our clients and recommend requisite changes.
LehmanBrown assists clients in setting up wholly foreign owned enterprises and branches (WFOE and WFOE branches), domestic Chinese enterprises, equity joint ventures (EJV), cooperative joint ventures (CJV), representative offices (RO) and non-profit organisations (NGOs). We provide annual filing of returns, license renewals, license changing and other administrative requirements therefore enabling you to focus on your core business activities.
This includes all aspects of registration:
- Application for company name through the Administration for Industry and Commerce
- Document drafting and submission to the authority to collect the certificate of approval and business license
- Company chop production
- Registration with other relevant government departments
- Bank account opening – both capital account (SAFE) and the basic RMB business account
- Social welfare account setup
To make an enquiry or for further information, please contact us at email@example.com