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Shanghai is the most popular destination for foreign investors setting up in China. Businesses must familiarize themselves with the new Foreign Investment Law to ensure they are complying with the latest corporate establishment and due diligence regulations in China. This article is to introduce info about setting up a Joint Venture in Shanghai for your reference.
Why setting up a Joint Venture in Shanghai?
For foreign investors, there are two distinct reasons that a company may choose to enter into a joint venture.
- First, it allows foreign businesses to invest in an industry sector that is categorized as ‘restricted’ under China’s Negative List.
- Second, it can enable a foreign company to make use of the local know-how, sales channels, and distribution networks of a Chinese partner, which can assist with the initial operations as well as expansion of the company.
Amid a slowing Chinese economy and growing market competition, setting up a joint venture may be a strategic investment vehicle for market entry or expansion into China – one that allows investors to reduce their risks while gaining access to local networks and resources.
Starting a joint venture in Shanghai
A joint venture or JV is a limited liability company structure formed by two foreign investors or a foreign individual and a Chinese company.
Once formed, the JV becomes a new legal entity in which the liability of the shareholders is limited to the assets they brought to the business. This liability is then restricted to the JV and does not extend to the parent company.
Types of JVs before the new Foreign Investment Law comes into effect
Equity Joint Venture (EJV): This is a limited liability company where profits and losses are distributed between parties in proportion to their respective equity interest.
Cooperative Joint Venture (CJV): This is a JV structure that offers more flexibility for investors. It can operate as a limited liability company or as a non-legal entity. Further, unlike the EJV structure – profit, risk, and control are not divided in proportion to their equity interests. Instead, they can be negotiated within the contract agreement.
Tannet Group is a specialist foreign direct investment practice, providing corporate formation, business advisory, tax advisory and compliance, accounting, payroll, due diligence and financial review services to multinationals investing in China, Hong Kong, Singapore and the rest of the world.
If you want to know more about how to prepare for and establish your own joint venture structure, please connect with us.
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