When foreign investors decide to establish their presence on the Chinese market they can choose between opening a branch or a subsidiary. In order to make this decision, entrepreneurs need to consider the market needs and the long-term goals for their company in China. The differences between the two business forms are relevant and can influence the manner in which the enterprise will perform.
Our lawyers in China can provide personalized advice so that you can make the best business choice based on your needs. Business investors will be able to make the best decisions for their company once they have a good understanding of the differences between a branch and a subsidiary and also a good image of the business particularities in China.
A branch in China
A branch company can be opened by a registered mainland Chinese company or by a foreign company that wants to establish its business presence in China. This type of company does not have its own legal entity and it is not independent of the parent company. It must share the name of the head company and this can be done simply by adding the Chinese word for a branch at the end of the company’s name.
Any operations performed by a branch in China must be in line with the parent company’s business scope. The branch does not need a board of directors and the parent company is fully liable for the debts and obligations of the Chinese branch. This extensive liability is the main difference between a branch and a subsidiary. Our Chinese attorneys can help you with more information about liability and how it affects your company.
A subsidiary in China
Unlike the branch, the subsidiary is a separate legal entity in which the parent company owns shares. The two companies do not need to have the same name and the parent company’s control is limited to the amount of share capital invested in the company. For example, it can appoint or dismiss board members. A wholly owned subsidiary in China has 100% of its share capital owned by the parent company. If this is the case, then the parent company has complete control over the subsidiary. Our Chinese attorneys can tell you more about the company incorporation procedure in China which you will have to observe if deciding to open a subsidiary. Some business activities in China will require special permits and our lawyers can help you obtain them.
For a better understanding of the differences between a subsidiary and a branch in China, please watch the video below: