Setting up a company in China can be achieved in several business forms. Investing in a market as complex and expansive as China comes with legal, regulatory, and cultural challenges. Therefore, before business setup, choosing the right corporate structure is of great importance. Foreign investors who want to save time and money should carefully consider the options and seek local expertise for best results. Tannet with rich experience in corporate services is glad to help. Below, please find the most popular business presence when it comes to foreign invested enterprise in China.
I. Representative Office (RO)
A Representative Office (RO) serves as an extension of a parent foreign enterprise. It does not form its own separate legal entity; the foreign parent enterprise assumes all legal liability and ownership of property acquired by the RO. When an RO breaches a contract, the foreign company is liable. Similarly, if the RO makes a purchase, the parent owns the purchase.
An RO is also limited in its commercial capacity. It cannot engage in profit-generating activities and can only hire local staff through a qualified labor dispatch agency. Its main function is to facilitate the activities of a foreign company in China. It is also an effective way to improve the efficiency of communication lines with Chinese partners or suppliers.
II. Wholly Foreign Owned Enterprise (WFOE)
A Wholly Foreign Owned Enterprise (WFOE) is an enterprise owned by one or more foreign investors. It assumes its own separate legal personality status, which means it has rights and obligations under the law, such as the capacity to own property and the ability to enter into legally binding contracts.
In comparison to ROs, WFOEs provide greater freedom in business activities and offer foreign investors 100 percent ownership and management control. Broadly speaking, there are three main categories of WFOE setups: service (or consulting) WFOE, trading WFOE, or manufacturing WFOE.
III. Sino-Foreign Joint Venture (JV)
A Sino-Foreign Joint Venture (JV) is a commercial enterprise entered into by at least one foreign investor and one domestic Chinese party. A JV is not merely a merger of two companies: it forms a new legal entity (except in some rare cases discussed below). A JV may take many shapes and forms, and can be tailored to the specific needs of a business. However, there are two common types of joint venture: Equity Joint Venture (EJV) and Cooperative Joint Venture (CJV).
Investors commonly opt for a JV in one of two situations. Foreign companies that want to invest in a restricted industry sector develop JVs with a Chinese partner to meet investment requirements. Otherwise, foreign companies form JVs when they want to make use of the sales channels and distribution networks of a Chinese partner.
IV. Foreign Invested Partnership (FIP)
A Foreign Invested Partnership (FIP) is an unlimited liability business entity that can be set up without any minimum capital. Similar to JVs, it consists of two or more investors coming together for commercial purposes.
The Partnership Enterprise Law regulates the set-up and operation of partnership arrangements. However, on terms relating to its operation, the law often awards discretion to the FIP and provides that where the partnership agreement specifies otherwise, the agreement will prevail. This provides partners to a partnership agreement a high level of autonomy on how they wish to operate.
Tannet can assist investors in incorporating different types of company in China in the form of WFOE, RO, JV or FIP. We provide one-stop solutions which may help you save time and costs so as to better survive in Chinese market.
Contact Us
If you have further queries, don’t hesitate to contact Tannet anytime, anywhere by simply visiting Tannet’s website english.tannet-group.com, or calling Hong Kong hotline at 852-27826888 or China hotline at 86-755-82143512 or 86-755-82143181 or emailing to tannet-solution@hotmail.com. You are also welcome to visit our office situated in 16/F, Taiyangdao Bldg 2020, Dongmen Rd South, Luohu, Shenzhen, China.
Previous：Doing Business in China: Difference Between Taobao and Tmall
Next：China Company Formation Requirements (WFOE)