China Corporate Constructions

China Corporate Constructions

While home companies have a large range of alternate options in establishing enterprise operations in China, foreign corporations are more restricted, with the commonest enterprise vehicles for international traders being:

- Consultant Offices
- Wholly Overseas Owned Enterprises
- Joint Ventures (Cooperative and Contractual)

1.zero Representative Offices

Basic

The fastest and easiest method for a international company to determine a presence or 'footprint' in China is thru registration of a Consultant Office of a overseas company. While this is true, there are particular factors that have to be considered when deciding whether or not an RO is the appropriate structure:
i) ROs can not conduct direct profit-making actions (can't earn income) and will solely serve a liaison function between head office and suppliers/distributors/clients in China;
ii) ROs do not need separate authorized personality and may solely contract or conduct business on behalf of head office;
iii) practically, ROs are limited almost about business relations with Chinese companies who might choose to deal with Mainland registered firm;
iv) taxes should still be paid (though there are not any profits);
v) ROs, while easy to establish, are comparatively more complicated when closing.

An RO is permitted to:
- Conduct information assortment and analysis on local market
- Liaise with native contacts on behalf of guardian firm
- Coordinate father or mother companies actions in China comparable to contract negotiations
- Coordination of warranty and after-sales service
- Conduct companies for mum or dad company akin to coordination of import, export, and distribution of merchandise

An RO is not permitted to:
- Directly interact in business for profit
- Sign contracts by itself behalf
- Characterize entities other than the father or mother firm
- Collect money or situation invoices for services or products

Consultant offices are ruled by the Procedures for the Registration and Administration of Resident Consultant Offices of Foreign Enterprises in China and the Detailed Guidelines of the Ministry of Foreign Trade and Economic Cooperation for the Implementation of the Provisional Regulations Governing the Examination, Approval and Administration of Representative Offices of Overseas Enterprises.

Registration

Unlike many other nations, Consultant Offices in China are topic to registration requirements. A filing must be made with the local Administration for Trade and Commerce, which, if successful, will challenge an Approval Certificates for the Consultant Office. Thereafter, a number of filings with different authorities such because the Overseas Exchange Bureau must be made, and a 'Enterprise License' issued by the local Administration for Business and Commerce.

Registration is usually valid for under three years and application must be made prior to expiration for renewal of the term.

It is important to note that so as to establish an RO in China, it is crucial to ascertain a physical office house (in cities resembling Shanghai, solely certain business buildings could also be used to register ROs).

2.zero Wholly Foreign Owned Enterprises

General

Wholly Overseas Owned Enterprises (WFOEs) or restricted liability firms whose traders are purely overseas are quickly turning into the preferred methodology of foreign funding in China. While international firms as soon as thought (and had been typically compelled by laws) that a native associate was essential to operate enterprise in China, this is more and more now not the case in a large range of industries.

Traits of WFOEs:
- Between one to fifty shareholders
- Restricts the best to switch shares
- Prohibits public offering of shares
- Equity is divided primarily based on contribution to registered capital and never allocation of shares
- Legal responsibility is restricted to the quantity of registered capital contributed

WFOEs are governed by the Regulation of the PRC on Enterprises Operated Exclusively with Overseas Capital, and relevant implementing regulations.

Advantages of WFOEs:
- Management control
- Simpler institution procedures
- Easier to terminate
- Easier to increase funding
- Protection of mental property

Disadvantages of WFOEs:
- Lack of expertise and native connections
- Will not be listed on stock trade

Establishment

There are a number of steps required to determine a wfoe china:
- Filing of articles of firm introduction letter, articles of affiliation, feasibility research, and other corporate documents with the local foreign commerce bureau for approval and issuance of Overseas Investment Approval Certificate.
- Collateral filings with different authorities authorities similar to:

o Local and nationwide tax bureaus

o Foreign trade bureau

o Customs bureau

o Statistics bureau

o Public safety bureau
- Within 30 days of acquiring Foreign Funding Approval Certificates, receive temporary Business License from the Administration for Trade and Commerce
- Make Registered Capital Contributions and Audit by Domestic Accounting Agency
- Submit funding report to Administration for Industry and Commerce to obtain Permanent Business License