China Company Formation

China company formation is the term for the process of incorporation of a business in China. It is also sometimes referred to as China company registration. The forms of China Company Formation can be divided into Wholly Foreign Owned Enterprise, Representative Office, Equity joint venture, Co-operative joint venture and Foreign Investment Enterprise.

Overview of China Company Formation

The statistics from China Industrial and Commercial Bureau show that the number of foreign enterprisers in China amount to 439.3 thousand in 2011, decreasing 7.2 thousand than last year, however the registered capital amount to 11.6 trillion, 7 billion greater than last year. During the current financial crisis, the number of foreign enterprises in China presents a situation of reduction, but a growth in registered capital.

It demonstrates that China company formation still keeps a strong attraction for oversea investors. China maintains a kind of relatively strong stability during the international financial crisis, compared with other countries. Since the reforms of the late 1970s, the Chinese government has created an increasingly sound investment environment for foreign investment, and China’s foreign investment attraction is actually continually enhanced. ONO BBB will give a brief introduction of the entities of foreign enterprises, in order to provide the information for the oversea investors.

Forms of China Company

1. China Wholly Foreign Owned Enterprise (WFOE)

The Wholly Foreign Owned Enterprise, abbreviated WFOE, is a common investment vehicle for mainland China-based business. The unique feature of a WFOE is that involvement of a mainland Chinese investor is not required, unlike most other investment vehicles. WFOEs are limited-liability corporations organized by foreign nationals and capitalized with foreign funds. This can give greater control over the business venture in mainland China and avoid a multitude of problematic issues which can potentially result from dealing with a domestic joint venture partner.

2. China Representative Office (RO)

A Chinese representative office (RO) is an institute setup in China, representing its parent company for liaison with Chinese counterparts. A RO is not considered to be a separate legal entity. It can not directly engage in business operation. However, through which its parent company can enter into contracts with its supplier/customers in China in its own name, but not under the name of RO. A representative office is popular for those who are willing to enter China at the test period of business and investment.

3. China Equity joint Venture (EJV)

The corporate form of an EJV is the limited liability company, which possesses the status of a Chinese legal person. It involves joint investment and operation and the sharing of profits and losses, as well as risks in proportion to the partners’ respective shares in the registered capital.

4. China Co-operative joint venture (CJV)

In most respects, CJVs are structurally similar to EJVs. Unlike EJVs, however, CJVs can be established either as a limited liability company or as a non-legal person, in which the partners are subject to unlimited liability and thus entirely liable for any losses. The rights and obligations of the JV partners concerning issues such as distribution, investment, operation and sharing of profits/losses and risks are determined by the individual joint venture contract.

5. China Foreign Investment Enterprise (FIE)

Setting up an FIE is a common method of creating an operation in Asian countries, especially in China. In China, any one of a number of legal entities can be considered FIEs including equity joint ventures (EJV), cooperative joint ventures (CJV), wholly-owned foreign enterprises (WFOE) and foreign-invested companies limited by shares (FCLS).

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