Foreign investors can set up four kinds of company types in mainland China. Depending on the purpose of business, investors can decide which company type is suitable.
A Joint Venture is a business arrangement with a Chinese partner in which the participants create a new business entity or official contractual relationship. A Joint Venture is the fastest way to set up a company in mainland China. The Chinese Government encourage foreign investors to us this type of company, as it can bring in new technologies, skills and knowledge. In return, foreign investors can enjoy benefits, such as low labour/production costs and a Chinese market share. If a certain business is controlled by the government
like bars, restaurants, cosmetics etc. a Joint Venture is the only way to register a company in mainland China.
A Representative Office is established and fully controlled by foreign investors without Chinese partner participation. A Representative Office is the simplest and most cost effective method of establishing a useful business presence in China. They are only allowed to conduct indirect operational services such as introduction of products, market research etc. Direct trading, manufacturing and receiving business revenue is not allowed. A Representative Office is also not allowed to operate as a partnership or sole proprietorship in China as it is not recognized as a legal person. More>
A Wholly Foreign Owned Enterprise is a limited liability company formed in mainland China entirely with foreign capital. It is totally under foreign control and does not have any formal Chinese ownership participation. It allows foreign investors to manufacture, process, assemble, trade, distribute and deliver services in mainland China. The initial investment capital for setting up a WFOE is RMB 100.000 (USD 16.000) to RMB 500.000 (USD 80.000) for consulting industry field and RMB 1.000.000 (USD 160.000) for trading and manufacturing industries. However, some provinces offer lower capital requirements in order to attract more foreign investment. A WFOE is very attractive for foreign investors because of the full control and 100% ownership. More>
Since March 1, 2010 it is possible for foreign investors to set up a new business structure with a Chinese company located in a Foreign Invested Partnership Enterprise (FIPE). The term partnership enterprise refers to general partnerships and limited partnerships which may be established within China by individuals, legal persons and other organizations. A state funded company, state owned company, listed company, public welfare-oriented public institution or social organization may not become a general partner of a limited partnership. At least one of the partners, private or legal person, have to be a foreign investor. FIPE is a unlimited liability business entity without minimum requirements on registered capitals.
FIPE's commonly used are:
A. General partnership Enterprise (GPE): a general partnership enterprise may be formed by general partners who bear unlimited joint and several liability for the debts of the partnership. The general partners share unlimited liabilities for the debt of the partnership.
B. Limited partnership enterprise (LPE): a limited partnership enterprise is formed by a combination of general partners and limited partners where the limited partners bear the liabilities for the partnership's debts to the extent of their capital contributions.
C. Special General Partnership enterprise (SGP): a special general partnership enterprise resembles a general partnership except that it must be a professional service institution offering services requiring professional knowledge and special skills. The structure shields co-partners from liabilities due to the will full misconduct or gross negligence of one partner or a group of partners. It is very similar to limited liability partnership in Europe and America.
Advantages of FIPE: No requirements on minimum registered capital; Less procedures comparing with Wholly Foreign Owned Enterprise or Joint Venture; Capability of converting RMB profits to US dollars for remittance to its parent company outside of China; Foreign Enterprise or Individual is allowed to establish a Partnership Enterprise with Chinese individual,while Chinese individual is not allowed to have Joint Venture with foreign investor; The profit distribution of a PE could follow an informal negotiated agreement or abide by scheme adopted in the partnership agreement, While for LLC, profit distributions is according the percentage of investment of shareholders. More>
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