China joint venture (JV) is a form of foreign invested enterprise that is created through a partnership between foreign and Chinese investors, who together share the profits, losses and management of the JV.
I. Types of Joint Venture in China
The legal regime of the People's Republic of China allows both contractual JVs and corporate JVs. In addition, partnership JVs are also permitted.
Contractual JVs are established under a contract that stipulates that each participant operates the business independently from each other, and respectively assumes civil liabilities, rather than joint and several liabilities.
A corporate JV can be established by enterprises or by an enterprise and an institution. A corporate JV is a newly-established economic entity that must independently assume liability and is subject to the Company Law.
A partnership JV can be established by enterprises or by an enterprise and an institution. Partnership JVs are subject to the Partnership Enterprise Law and operated according to a partnership agreement.
II. Advantages of a Joint Venture
1. Foreign companies can invest in businesses that are restricted by the government to Chinese companies. Certain sectors are reserved only for Chinese entities or JVs;
2. The use of local partner’s existing workforce and facilities;
3. Access to the existing channels for sales and distribution;
4. Ability to leverage Chinese partner’s relations or connections, including those with the ruling party;
5. Use of a partner’s network to build good relationships, avoid red tape and other bureaucratic complexities;
6. There is no need to go through the procedures involved in forming a WFOE and later deregistration of WFOE or representative office;
7. The Chinese partner can handle all application and registration matters on behalf of the JV;
8. Entry into industrial sectors which exclude wholly foreign-owned investment.
III. Procedures for the Joint Venture Establishment
For the establishment of a joint venture, all applications must be submitted in Chinese. The founding documents will probably be required for review by the competent authorities in China for the purpose of registration or anti-monopoly approval, and the competent authorities will only accept the founding documents in Chinese.
Once the approval certificate has been received, investors must apply and register for a business license with the AIC. AIC requires most of the same documents as MOC, plus its own standard filing forms.
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