Company registration in Mainland China
There are three common forms of enterprises for foreigners in Mainland China:
- Joint Venture (JV),
- WOFE (Wholly-owned Foreign Enterprise),
- Representative office (RO).
WOFE (Chinese: 外商独资企业) refers to a company in China that is solely invested and controlled by foreign parties. Setting up a WOFE requires an agreed level of foreign capital to be invested and registered with the authorities. It is currently the most popular form of incorporation for foreign companies in Mainland China as it allows them complete control of their operations.
Joint Venture (Chinese: 合资) is a form of company registration in China where there is both a mainland Chinese party and a foreign party. When China started opening up to foreign investment JV was the main method for foreign companies to get into the Chinese market and they did this by partnering up with a local Chinese company to create a joint venture. However, based on the many horror stories and bad experiences about joint ventures in China and the emergence of WFOE as a better alternative has led to the number of new JVs decreasing year by year. In some restricted industries, such as media, operating as a JV is the only option for foreign companies looking to get into China.
Representative office (Chinese: 代表处) is not an actual legal entity in China. Its solely purpose is to represent a foreign company in China. It is a simple way for a foreign company to have a limited presence in China, but there are heavy restrictions to what they can do. For example, a RO cannot directly employ any staff or collect any money. Much like JVs, Rep offices are becoming increasingly rare as foreign investors choose to set-up WOFE’s for their China operations.
Setting up the Company
The registration of a company in China takes about 30 working days to receive the business license. As mentioned above nowadays WOFE is the most preferred form by foreign entities. A WOFE may be capitalized by foreign investors and operated without the need for Chinese partners or employees. It will provide you with greater control over your business’s operations, revenue and profit targets. A WOFE is a favorable option for both individuals or overseas company that wants to enter the Chinese market.
The following matters are linked to the company incorporation of a WFOE in China:
- You must decide on and verify the name of the business with the authorities in charge;
- You should provide information about the owners (name, nationality, the country of residence);
- Decide the business scope and main business activities;
- Appoint the board of managers (these can be foreigners or Chinese nationals);
- Generate a business feasibility report (each type of entity requests this report);
- Provide the minimum share capital (free trade zones do not require it);
- Apply for a business license in accordance with the type of service you are offering;
- Approval from the PSB (Public Security Bureau) of the company chops, that in China are extremely important since often, a signature is not enough, you’ll also need a stamp;
- Registration with the Tax Bureau;
- Registration with the Customs Office (for trading companies);
- Registration with SAFE (State Administration of Foreign Exchange);
- Register for corporate bank account.
It is also mandatory to hire an accounting firm in China, so that all records of the business’s activities will be kept in order.
Who Should You Choose When Setting Up A Company in China?
Consulting company vs Law Firm
Application process and documents are government standard format and does not need to be reviewed by a lawyer. Sperton is a one-stop service provider for company set up and tax set up. Sperton provides the complete set up process whereas law firms only help you to the point you receive the business license, and you will need to figure out the post set up formalities such as bank account, tax verification, mandatory accounting etc. by yourself or find another service provider.
However, if your business is subject to special approval such as entertainment, culture, education, F&B, banking or some types of manufacturing, additional legal services might be needed.