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Before taking action on setting up a joint venture in Shanghai, there are a few issues you need to consider before that. It’s of great importance to think all those issues in a comprehensive way in case there are problems arising in the process. This article is to compile relevant info that you should consider before setting up a Joint Venture in Shanghai.
Pre-setup considerations
There are many opportunities that a successful JV can bring to a business. It can help foreign companies identify the right market, navigate often complex local regulations, monitor and safeguard intellectual property, and leverage local talent.
For businesses that wish to adopt a joint venture structure in China, there are several preliminary issues to consider, such as:
1.Is your business an ‘encouraged’, ‘permitted’, ‘restricted’, or ‘prohibited’ industry for foreign investment?
- This will determine whether you can in fact create a JV, and the incentives available.
2.What is your business scope?
- This will bring clarity to how your business scope can fit within the wider JV structure.
3.What is in your “Articles of Association”?
- This refers to structural issues like the company board structure, profits repatriation, trade unions, M&A, and liquidation.
4.What should be your registered capital and total investment (cash, “in kind,” loan, etc.)?
- This is a very important consideration and will need to be managed according to your business model.
5.If you are a manufacturing entity, what proportion of your production is for export and what proportion is for domestic sales?
- A critical issue with major tax and operational implications.
6.What is your profit distribution and liability?
- This can complicate matters in JVs.
7.What taxes will you need to pay?
- These are likely to include business tax, foreign enterprise income tax, VAT, withholding tax, individual income tax, and customs duty.
8.Where should your company be located?
- This will depend on your specific business and industry needs. It is important to compare several options, including development zones, if applicable, as each will have different costs and benefits.
9.What will the internal management structure look like?
- This includes asking who will be the leading party in the daily running of the business? Who will be in charge of sales or export sales? Another key consideration is establishing if it is necessary to allow one party to unilaterally increase the registered capital of the business that would dilute the shares of the other party.
10.What are the intangible considerations of running a successful joint venture in China?
- It is important to consider the business culture, customs, and local government priorities of the place of business.
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