How To Start a Business Entity In China
- The steps required to create the WFOE in China typically comprise of these steps:
- Examine whether it is possible that the WFOE will be conducting an enterprise that has been that has been approved to foreign investors through China’s Chinese government. For instance, up until recently, China prohibited private entities from participating in trade with exports. Export trade was managed by huge, state-owned trading firms.
- China recently ended its use of this system, and today both domestic and foreign businesses are able to establish trading companies. Limits on export-oriented trading companies have been removed, however, there are restrictions on companies that are oriented towards imports that could increase costs and increase costs. Since the rules were recently modified, the local regulators that must accept these projects do not have any prior knowledge of the concerns. This could result in a delays during the process of approval. This can also lead to such a cautious attitude to adequate capitalization, even for trading companies with an export focus. I will discuss capital requirements more in depth in the following paragraphs.
- Find out whether the investor from outside has been approved as an investor. In general, any legally-formed foreign business entity can be permitted to invest in an WFOE within China. China particularly welcomes investments that encourages exports of Chinese produced products. Investors must submit documents from the country of origin to prove that it is a legally established and validly operating company, as well as documents proving the identity of the person belonging to the investor that is legally authorized to sign legal documents for the investors. The investor must also provide documents proving its capital sufficiency in the country where it was incorporated.
To satisfy these standards The following documents are usually required from the business entity that is investing:
- Articles of Incorporation or similar (copy)
- Business licenses, both nationally and local (if there is any) (copies)
- Certificate of Status (Original) (U.S. and Canada) or an unnotarized replica from the Corporate Register for the investor or similar documents (original) (Civil Jurisdictions of Law)
- The Bank letter attests to a a sound connection with the bank and the current status of the business (original).
- The description of the investor’s business activities, as well as other materials, such as annual reports brochures, brochures, website and so on.
- These four first documents translate into Chinese and the last is transliterated into Chinese or it is summarized in Chinese.
- Many investors set up special purpose companies that serve as an investors in China. It is true that the Chinese regulators have gotten used to this method. However, Chinese regulators will continue to try to track the ownership of a foreign investor to a legitimate operating business. The secrecy of investors cannot be a possibility in China. The corporate register for the Chinese firm will simply mention that the company is owned by a foreign special entity investment company as the proprietor. In this way in terms of public information is concerned, privateness of the investor can be preserved. The investor from outside should be aware that this process can add some time and costs to the Chinese business creation process.
- Chinese government approval of the project has been granted by the Chinese government. In China unlike most nations that Western corporations are familiar approval of the plan from the relevant authority is a crucial element of the incorporation process. If the plan isn’t approved, incorporation will not be allowed. They are both inextricably connected.
The following documents must be prepared for incorporation/project approval:
- Articles of Association. This document will detail all the particulars regarding the management of the company and the capitalization of the business. There is no room to future decision All fundamental issues pertaining to the company and the project have to be decided prior to the time of drafting the Articles. This includes directors and local management local address, regulations regarding the scope of local managers’ authority the company address, as well as the registered capital.
- Feasibility Study. The project won’t be approved until local authorities are satisfied that it’s viable. It is usually required to have a basic business plan in the first year as well as a budget. The typical business plan that was created by the client and budget to create an feasibility report (in Chinese) that will comply with the specifications for approval by Chinese approval authorities. Chinese authorization authority.
- Leases: A lease agreement that covers all leases required must be signed. That includes office spaces leases and the lease of warehouses and factories. It is common practice to China to pay rent in one year’s advance. This should be considered when making a budget since the authorities of the government will be anticipating this.
- The proposed budget for salary and benefits. If the exact people who will be employed by the company haven’t previously been identified then one must state the job and the salary and benefit package that is proposed. The benefits for employees in China generally are between 32% and 42% of the base salary, based where the company. Employers from outside the country are required to meet the highest standards in the payment of these benefits. The initial investment requirement includes the amount that will pay wages for a reasonable amount of time in the start in the growth phase for the Chinese business.
- Other documentation that is needed for the particular business plan. The more complicated the project will be, the more documentation is needed.
The above documents have to be written in Chinese.
- It generally takes between two and five months to receive government approval, based on the area of the project as well as its scope and size. Cities with large populations like Shanghai are generally more prone to delays when compared to smaller ones. The investor is required to pay various fees to incorporate, which depend on the place of incorporation and the amount of capital registered as well as any licenses needed to carry out the project. Typically, these costs equal less than one percent of the capital initial.
- In the case of complex or large projects the approval process usually involves lengthy negotiations with the various regulatory authorities who require approval. For instance, a huge manufacturing plant could be a subject to serious environmental or land-use problems. Therefore, the timeline for the approval of incorporation isn’t always clear. It’s contingent upon the type of project as well as the location. Foreign investors need to be aware of this risk at the beginning.
Documents that are required Start a Business Entity
- Notice of approval for company name
- Lease or other evidence of office location
What Are All The Eligibility
Before you begin a business venture in China it is important to understand the various types of business structures you could create as a foreigner and the ways they differ. There are five choices available:
- Wholly Foreign Owned Enterprise (WFOE)
- Repro Office (RO)
- Joint Venture (JV)
- Partnership Enterprise (PE)
- Hong Kong company
Wholly Foreign Owned Enterprise (WFOE)
The major benefit that comes with Wholly Foreign Owned Enterprises is that they give the foreign investor complete control over their business operations in China. In certain sectors it is not feasible for foreign investors to set up the WFOE however in other industries, it’s becoming more common. A WFOE is an entity with limited liability with registered capital and a liability limit of its equity. It may generate income, pay tax in China and profits may be transferred to the investor’s home country.
Repro Office (RO)
Representative Offices aren’t permitted to earn revenues or sign contracts with companies who are located in China. This organization is designed to provide foreign companies with an office in China to network, conduct marketing, market research and other non-revenue-generating activities. It doesn’t require any capital at all to be registered.
Joint Venture (JV)
Joint Ventures are limited liability corporations that are created between the Chinese company as well as a foreign investor (the latter can be a corporation or an individual). Each party contributes investment and then share the earnings as well as the expenses and control over the company. In certain industries, JVs could be the ideal choice, even though they are one of the most difficult to manage.
Partnership Enterprise (PE)
Like a JV, Partnership Enterprises allow two or more foreign companies or individuals to conduct business in China. Although it’s a relatively new idea the structure is in the process of being sorted out.
Hong Kong Company
Hong Kong is one of the most efficient and simple places to establish an enterprise. Even though the Hong Kong company is not an official company in mainland China Many foreign investors decide to establish their businesses within Hong Kong to invest in China.
Foreigners aren’t able to open a business immediately in China. The company first needs to have been registered outside China before the foreign business can be recognized in China. There are three kinds of foreign companies that can be found that are registered in China; Registered Office (RO) or Wholly-Owned foreign enterprise (WOFE) or Joint Venture (JV) with an officially registered Chinese company. Each is different and has advantages and drawbacks and I would advise to conduct some research to figure out which option is most suitable for your company.
- Investment and purpose
- The operational structure of WFOE and the how many employees it has
- Permission to use land, environmental evaluation report
- Production size, products and detailed equipment list and business plan
- Environmental safeguarding measures
- For utilities, such as water and electricity
- The most recent Annual Audit Report copy has been received from the parent company.
- Letter of Authorization
- Copy of Passport
- Certificate of Incorporation Articles of Formation, Certificate of Incorporation or equivalent document
- Credit Reference Letters for Banks issued by Investors Bank
The Document is required Start a Business Entity
From the various options you have when starting your own business one of most crucial is the legal structure you choose to use for your business. The choice you make will not only influence the amount you have to pay in taxes, it will also affect the volume of paperwork your company has to complete as well as the personal liability you will face, and your ability to raise funds.