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Yiwu Business Setup (JV)

Updated:2017-9-29 11:16:54    Source:www.tannet-group.comViews:20

Yiwu business setup (JV) can be understood as registering a joint venture in Yiwu. A Joint Venture is a business arrangement in which the participants create a new business entity or official contractual relationship and share investment and operation expenses, management responsibilities, and profits and losses.

The Chinese authorities encourage foreign investors to use this form of company in order to obtain exposure to advanced technology and new management skills. In return, foreign investors can enjoy low labor costs, low production costs and a potentially large Chinese market share. Joint Ventures are sometimes the only way to register in China if a certain business activity is still controlled by the government.

Key Issues of A Joint Venture
1. For an EJV:
(1) Each party must make cash or permitted contributions in proportion to its subscribed percentage of the EJV's registered capital;
(2) Profit must be distributed strictly in accordance with the parties' respective percentage shareholding of the registered capital of the EJV;
(3) Upon dissolution of the EJV at the expiry of the term of operation, the EJV's net assets are to be distributed to each party in accordance with its respective shareholding of the EJV's registered capital.

2. For a CJV:
(1) A party (typically, but not always, the Chinese party) may contribute non-cash intangibles in the form of "cooperative conditions";
(2) Profit sharing in a CJV need not be made strictly in accordance with the parties' respective percentage shareholding of the registered capital of the CJV but can be made in accordance with the agreement of the parties;
(3) Upon dissolution of the CJV at the expiry of the term of operation, the CJV's net assets may be transferred to the Chinese party without compensation so long as the foreign party has been able to recoup its capital contribution during the term of the CJV.

Capitalization of JV
The concepts of authorised and issued capital are not used in connection with Sino-foreign joint ventures. Under applicable PRC law, registered capital is defined as the total amount of capital contributions subscribed to by the parties and registered with the Chinese authorities. Thus, the term "registered capital" refers to the parties' equity in the venture.

Once the joint venture contract is approved, the parties must inject their subscribed registered capital amounts within the time limits set out in the contract. If paid in one lump sum, the registered capital contributions must be made within six (6) months of the issuance of the business license for the joint venture. If the subscribed registered capital is to be injected in installments, the first installments, which must not be less than 15% of the total subscribed registered capital, must be made within three (3) months following issuance of the business license.

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