Setting up a Wholly Foreign Owned Enterprise in China: What Do You Need?

If you are planning to enter the Chinese market and do business there, you are on the right path to enjoying a bigger market. China has become a global business hub that investors use to catapult their businesses to global multinationals. Its strategic location in the heart of the Far East, a large local market and many bilateral agreements, makes it a high potential jurisdiction for rapid business development.

While the advantages of taking your business to China are not in doubt, you need to follow the right procedure to set up a company there. Although you can opt for a joint venture, it comes with some limitations because your need a Chinese partner who MUST be a majority shareholder in the venture. So, a better option is using a wholly foreign owned enterprise (WFOE), which allows you to own it 100%. Here are the main steps that you need to register a WFOE in China.

Define your Chinese Company Name

Once you have decided to run an offshore business in China, the first step is getting the right name. Therefore, you need to file for your official business name to ensure that it does not conflict with other businesses that are already registered. We suggest that you look for a name that is closely related to the services or products so that your brand remains outstanding.

Prepare the Company Registration Documents

In the second stage, you need to prepare the legal documents that re required for company registration. Some of these include the articles of association, the list of controlling partners, and the business management structure. Besides, you will need to provide a feasibility study report (FSR), bank reference letter, and lease contract for the rented office.

Apply for Business License

Once you have prepared all the required documents for registration, it is time to apply for a business license with local authorities. Note that unlike other jurisdictions such as Hong Kong that require you to only deal with the companies registry, China is different. Here, you need to apply to different authorities, including the Administration for Industry and Commerce (AIC) and the Ministry of Commerce (MOFCOM).

Further, you need to get the company chops by registering with the Public Security Bureau. Without a business chop, it will be near impossible to seal any deal in China.

Register Your Business for Taxes

Once you have received your business license, there are several more steps that you must do before the company can commence operations. First, you need to register for taxes at the State and local tax bureau.

Use Expert Agency for Help

When registering a company in China, the process can be lengthy, especially the preparation of the documents. Again, you have to deal with a lot of departments before your business can commence operations. But you can simplify the process by working with an expert agency. If you pick a good agency, it will not just help you with business registration, but will also help you during business establishment in China.

When you decide to take your business to China, it is a turning point that could help to lever it to succeed. To make the process simpler, faster, and direct, you should consider working with an expert agency that understands the Chinese market and has ample experience in business registration.

Types of Joint Ventures in China

Today, China is one of the largest economies in the globe. In less than five decades, the country has undergone transformations that can only be described as magical. In addition to having a large population, China has a highly developed infrastructure and burgeoning business climate. So, if you want your business to grow rapidly in Asia and even globally, you should consider registering and operating it in China.

The three common legal business formations in China are you holly foreign formed enterprises (WFOE), joint ventures, and branch offices. But if you want to grow your business rapidly, one of the best business formations is a joint venture.

Although a joint venture indeed requires your Chinese partner to have controlling shares on the business, you will be able to exploit his understanding of the local market, and networks for rapid growth. In this post, we will look at the different types of joint ventures that you can form in China.

Equity Joint Venture (EJV)

This is an enterprise that is created using capital pooled from two investors (companies), a foreign business, and a domestic one. With this type of joint venture, the profits are distributed depending on the shares that each contributing company has.

The joint venture uses a two-tier management structure that comprises of a management team and board of directors. But it is the management team that is responsible for the daily running of the company. Other important things you need to know about equity joint ventures include:

• The foreign business has to contribute a minimum of 25% of the joint venture capital. But the contribution cannot go beyond 49% because the Chinese partner must be a majority shareholder.
• The shareholding cannot be transferred without getting approval from the Chinese administration. Further, investors are restricted from withdrawing the joint venture’s registered capital.

Cooperative Joint Venture (CJV)

Like an equity joint venture, a cooperative joint venture is established with capital pooled from domestic and foreign entities. With a CJV, the profit is distributed between investors in a proportion that may deviate from the number of shares held by each investor. This means that you can enter into an agreement for sharing profits before getting started with the company. Although this model is still used by some companies, it was more common in the past when Chinese partners mainly provided land and labor for the business.

The running of a cooperative joint venture uses a board of directors as the highest organ of management, and a management team for daily operations. Here are other important things that you need to know about CJV operations in China.

• There is no limitation on the minimum foreign contribution. However, the rule that the foreign partner must be a minor shareholder, and the Chinese partner a majority shareholder still applies.
• Unlike the equity joint venture, the cooperative joint venture offers greater flexibility in the structuring of the enterprise.
• The foreign investor is allowed to withdraw the registered capital or a portion of it during the period of the contract.

If you prefer to use a joint venture in China, it is important to understand that they fall in different categories. To make the process easy, and ensure you have the best agreement with your Chinese partner, you should consider working with an expert agency.

Three Most Important Things to Factor when Registering a Company in China

When the name “China” is mentioned, the image that runs through the mind of investors is that of a land of business opportunities. This is true, true. Checking closely, you will realize that the bulk of big multinationals, from Apple to Netflix, have their presence in China. So, your decision to expand your enterprise to China is a great one and will offer it a good platform to spring into a multinational.

To take your business to China, you need to start with registration. One of the best business formations in China is a wholly foreign owned enterprise (WFOE) because it gives you absolute control. But registering a business in China and expanding there can be daunting. To make the process more straightforward for you, here are some things that you must factor.

Sector Specific Restrictions

In China, all foreign investments are carefully regulated by the government. Before you can start the process of registering a company in China, you should check the Catalog for the Guidance of Foreign Investment Industries to see the different clusters, which include encouraged, restricted, and prohibited. Note that if your business targets an area that is not listed in the catalog, it is simply forbidden. Also, the classification of these sectors defines the level of approval that foreign investments require.

Location

For investors, China is one big country that offers the opportunity for growth and success. But that is not necessarily correct. In reality, China comprises of different regions (call them provinces) that have varying unique cultures. Therefore, you need to select a geographic location that offers your enterprise-specific benefits for fast growth. For example, cities have a higher population and well-developed infrastructure that your business could ride on for faster establishment.

If your business is in manufacturing, it is also important to note that the Chinese administration offers key incentives for businesses to open their operations away from the coast. So, simply pick a good urban area with good infrastructure such as road network to allow you to move raw materials and finished products easily.

The Right Business Formation

After understanding the regulations about the business you intend to incorporate in China, the next thing is establishing the right formation. In China, there are three common company formations that you can use: Joint venture, a wholly foreign owned enterprise (WFOE), and representative office.

• Representative Office (RO): This is the simplest type of business to form in China. It is considered part of the parent company back home and is only allowed to represent it in non-profit based activities such as market surveys and attending meetings.
• Joint Venture (JV): This business formation requires you to form partnership with a local Chinese business. But the Chinese partner is required by law to hold controlling shares in the business.
• Wholly Foreign Owned Enterprise (WFOE): This is the most preferred business formation in China. Unlike a JV, a WFOE allows you to own 100% of the shares in the company. This implies that you have absolute control over the operations of the company.

When you understand the above three things about company formations in China, registering and starting your operations become simple and direct. To understand these three core components and simplify the process of business establishment, you should consider working with an expert agency. Agencies are run by experts with deep understanding about the Chinese market. So, let them hold your hands to easily realize the success you anticipate.

How to Identity a Good Partner to Form a Joint Venture in China

If you want to expand your business in China, there are three main types of business formations you can select. The commonest types of business formations include representative office (RO), wholly foreign owned enterprise (WFOE), and a joint venture (JV).

The most preferred type of formation is a WFOE because it allows you to have 100% shareholding. However, you need to be prepared to start from scratch and grow your business, which is never easy. Again, a representative office (RO) might not be desirable because it is only required to represent the parent company in non-business based deals, such as carrying market research. This is why you should consider a joint venture when expending to China.

Benefits of Using Joint Ventures in China

A joint venture (JV) in China is a business formation that requires you to form a limited liability company with a Chinese partner. In this type of business formation, the Chinese business partner is required to have controlling shareholding on the company. Here are the benefits of using a joint venture.

• You need less time to study the Chinese market.
• You can easily start and grow the business rapidly.
• You can use Chinese business networks instead of building your own.

How to Select a Good Business Partner

While the benefits of using a joint venture (JV) are clear, we must indicate that selecting a good business partner can be a serious challenge. To help you identify a great business partner for a joint venture, here are some useful tips to guide you:

• Start by Establishing a Representative Office

As we have mentioned, a representative office (RO) is one of the common business formations that you can select in China. Because it is not allowed to hold business deals, it is a great option to scout the Chinese market for a potential partner.

• Use Referrals

Another method of identifying a great partner is using referrals. So, reach other enterprises that have already entered the Chinese market and ask them for referrals. You could also use your consulate to search for potential partners who are committed to business success.

• Use an Agency

A simpler yet highly effective method of identifying a good partner for a joint venture in China is using an agency. Agencies are expert organizations that are allowed in law to help companies register businesses in China. The good thing with agencies is that they have been in the Chinese market and have helped other businesses entering China. However, it is still important to carry due diligence before entering into a contract with a partner suggested by an agency.

When you decide to expand your business to China, using a joint venture allows you to expand rapidly into the new market. Although it comes with some limitations because you can only be a minor shareholder, it is easier to achieve your dream of getting into the Chinese market. Using the tips we have highlighted above, you can identify a great partner who you can grow together to conquer the Chinese market and beyond.