Establishing business in China
There are several ways to establish business in China, one of them is joint ventures.
A joint venture is a long-term agreement among different companies whose purpose is the production of goods, the provision of services or searching new markets.
Joint ventures among Chinese and foreign companies must be:
- Limited liability company with foreign partner holding at least 25% of the equity.
- Share capital in line with the volume of the business; industrial property rights, real estate, machineries…
- Unanimous resolution of the board of directors for many issues (variation of equity, Articles of Association changes, liquidation, M&A…).
Establishing joint ventures can be only among companies, not individuals and is necessary the following steps:
- Research of the partner.
- Preliminary negotiation – Letter of Intent (LOI).
- Feasibility study.
- Draft of Articles of Association.
- Approval by the Minister of Commerce and registration at SAIC (State Administration of Industry and Commerce).
- Issuance of Business Licence.
Another way of doing business in China is made by the Wholly Foreign-Owned Enterprise (WFOE).
A WFOE is a common investment vehicle for mainland China-based business wherein foreign parties (individuals or corporate entities) can incorporate a foreign-owned limited liability company. The unique feature of a WFOE is that involvement of a mainland Chinese investor is not required, unlike most other investment vehicles.
Advantages
- The ability to uphold a company’s global strategy free from interference by Chinese partners (as may occur in the case of joint ventures).
- Total management control within the limitations of the laws of China.
- The ability to both receive and remit RMB to the investor company overseas.
- Increased protection of trademarks, patents and other intellectual property, in accordance with international law.
- Shareholder liability is limited to original investment.
- Easier to terminate and simpler establishment than a Joint Venture.
Disadvantages
The main disadvantage of establishing a WFOE is the business scope because is very narrow, limited (trading, manufacturing and services companies) and different from Hong Kong and western jurisdictions.
1 comentario /
19 Mar 2015
por
prodriguez
MBAftmad /
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