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Setting up Business Entities in China

Posted by attorney Wenzhao Wang

Compared with the process for setting up a business entity in California or other states in the United States, setting up a business entity in China is very complicated, time-consuming and costly. When starting a business in China, it is helpful to understand the registration procedures and requirements for each type of business entity.

There are 4 types of business entities available for foreign invested enterprises (“FIE") to choose in China, namely, Representative Offices (“RO"), Wholly Foreign Owned Enterprises (“WFOE"), Joint Ventures and Cooperatives Companies (“JV"), and a new entity- Foreign Invested Partnerships (“FIP"). Among the 4 entities, the RO is usually chosen by an FIE for market research in China or a liaison with Chinese businesses and customers without direct business operations, on behalf of its foreign parent company. WFOE is a limited liability company wholly owned by 100% foreign investors, while a JV includes Equity Joint Venture and Co-operative Joint Venture, which is established jointly by at least one Chinese partner and one foreign partner. In 2010, FIP became a new business entity allowed by 2 or more foreign enterprises and individuals or by a foreign party (either enterprise/s or individual/s) and a Chinese party (a natural person/s or legal person/s).

Each of the above 4 business entities has specific rules and requirements respectively regarding the business scope, minimum registered capital, repatriation of profits out of China, business licenses, staff hiring and time needed for the approval process. Careful consideration of these issues is required to determine which business entity format is best for the particular situation at hand. It is advisable to contact a competent attorney to learn more about what those specific rules and requirements are and how to choose the right format for your business in China.

Disclaimer: This article is for information only and does not constitute legal advice.

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