How to Change the Type of Your Company in China
How to Change the Type of Your Company in ChinaUpdated on Wednesday 01st June 2016
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If you want to register an enterprise in China or if you want to do business in this country, it is significant to first learn a few things about how the system of company registration in China works.
The success you’ll have conducting businesses in China depends of how you will learn about the laws and the legal procedures applied there.
Our team of lawyers in China will provide you with proper information, guidance and legal assistance for a better understanding of the country's rules and regulations.
Frequent types of company registration in China
Here are the main types of companies that can be incorporated in China and how they work:
1. WFOE (Wholly Foreign-Owned Enterprise) refers to an enterprise in China that is individually established by foreign investors and that does not have direct participation of a mainland Chinese entrepreneur.
Creating a WFOE requires a settled level of foreign capital to be invested and registered with the authorities in China. This kind of firm is presently the most popular and attractive form of incorporation for foreign businesses in China, as it permits them complete power of their operations.
2. JV (Joint Venture) is a special structure of company in China where there is both a foreign party and mainland Chinese party.
When China began opening up to foreign investments, JV was the main way for foreign firms to get into the Chinese market and they did this by partnering up with a local Chinese enterprise to generate a joint venture. In some controlled industries like mass media, operating as a JV is the only alternative for foreign companies to have businesses in China.
3. A representative office is not in fact a legal entity in China and it exists only for the purpose of representing a foreign-registered firm in this country. Forming a representative office is a practically a simple way for a foreign company to have a partial presence in China, but there are serious limits on what they can do. For instance, it cannot directly employ any personnel or even accumulate any capital!
SOE (State Owned Enterprise) refers to businesses that long time ago were owned by the Chinese government, but since reforms began in the 1980’s, the market share of SOE’s has decreased noticeably. Most SOE are formed to function in specific major sectors considered to be of tactical significance by the Chinese government, like telecommunication, electric power or aerospace.
Changing from a representative office into a WFOE
Because creating a representative office in China is cheaper, easier and faster than forming a WFOE, companies often consider forming it in order to check business field first, with the intention of switching over to a WFOE once it becomes certain that China will be viable for them.
Here, we mention two important steps in making the switch from a representative office into a WFOE:
1. closing the representative office;
2. creating a WFOE from scratch.
Because the expenses of forming a representative office, shutting it down and then setting up a WFOE are significantly higher than just forming a WFOE. Registering a representative office with the later purpose of registering a WFOE seldom makes sense.
Our Chinese lawyers are able to help and guide you through the entire changing process, in order for you to avoid any problems.
Advantages of a WFOE
Foreign investors prefer to form WFOE because of many advantages and here are a few important ones:
• limited liability;
• direct billing;
• no Chinese partner required;
• direct engagement in business activities;
• no minimum years of establishment for the headquarter.
Please feel free to contact our team of lawyers in China, if you want to change the type of your company, in order to receive proper guidance and legal assistance.