Closing down a foreign invested company in China must properly go through certain legal procedures. In the past, many foreign invested companies simply are abandoned by their foreign investors. However, with the increasing importance of compliance operation, foreign investors is subject to more substantial liability for failure to properly close their foreign invested enterprise (FIE). In case of improperly settlement, you may not be able to set up business in China any longer.
Reasons for Winding up Your Business Entity
A foreign-invested enterprise (FIE) may be liquidated in the following situations:
1. Expiration of joint venture contract terms;
2. Consent of investors to dissolve the enterprise due to poor operation and serious losses;
3. failure of either party to fulfill its obligations defined by the contract;
4. Enterprise cannot continue to operate due to serious losses due to force majeure or government intervention;
5. Enterprise has become insolvent;
6. Enterprise has been dissolved for violation of law or harming public interests;
7. Other reasons as defined by the contract and articles of incorporation.
Procedures for Termination of FIE
(1) Submit application for termination to relevant authorities;
(2) Public announcement and notification of creditors of intentions to liquidate assets;
(3) Produce the procedure and principles for the liquidation of assets and nominate candidates for the liquidation panel (responsible of the entire liquidation process);
(4) Panel to determine the assets, creditor's rights and debts of the enterprise, provide a statement of assets and liabilities and catalogue of properties, propose the basis for assets evaluation and computation, and set forth the liquidation plan;
(5) Once all debts are paid, the remaining assets (if any) shall be shared among the original investors based on the relevant provisions of the contract and articles of incorporation;
(6) Provide liquidation report to the board of directors for adoption;
(7) Submit liquidation report to the reviewing and approving authorities for approval;
(8) Deregistration and return the business license of the enterprise for revocation.
When a license is revoked, the following is required:
1. The company must immediately cease doing business.
2. The official company seals must be collected and deposited with the licensing authority.
3. All taxes and fees owed to the national and local governments must be paid.
4. All salary owed to employees must be paid.
5. The legal representative (you) and the directors of the company must immediately liquidate the company in accordance with the China Company Law and local procedure.
Consequences on Abnormal Cancellation
1. Cannot borrow to buy a house;
2. Cannot do immigration;
3. Cannot receive endowment insurance;
4. Fines by tax authorities;
5. The legal representative will be listed in the blacklist, and cannot leave the country, or take the plane and high speed train;
6. The legal representative will be monitored, and other companies associated with it will be affected as well;
7. Cannot enjoy government subsidies;
8. Cannot open the corporate bank account.
Due to the tougher regulation on business setup in Horgos, many enterprise choose to close their entity there. Up to now, Tannet has handled nearly a hundred of cases on company deregistration. We provides one-stop business solutions from company setup to company deregistration. In addition, we can also assist you in intellectual property protection, including trademark, patent and copyright.
Contact Us
If you have further inquires, please do not hesitate to contact Tannet at 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 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.
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