Prior to the new PRC Foreign Investment Law ("FIL") taking effect on 1 January 2020, the common entity forms of foreign investment in China were Wholly Foreign-Owned Enterprise (WFOE) and Joint Venture (JV), including the Equity Joint Venture (EJV) and Cooperative Joint Venture (CJV).

The new FIL sets out a framework that will allow equal national treatment of foreign investment and local investment. Starting from 1 January 2020, it replaces the current three laws governing WFOEs, EJVs and CJVs, subject to a 5-year transition.

It also provides that all the foreign invested entities should follow the PRC Company and the PRC Partnership Enterprise law and other applicable laws and measures after the transition period. The Suggested Entity Forms under the PRC Company law and Partnership Law are: Limited Liability Company (LLCs), Companies Limited by Shares (CLSs) and Partnership.

WFOE

WFOE is a Chinese registered company that is completely owned by foreign investor and is the most common business structure when registering a company in China as it permits the most freedom in business management.

A WFOE may generally be set up by foreign investors where the type of business which will be carried out by the WFOE is not subject to any shareholding restrictions set out in the Catalogue or other PRC regulations.
https://www.azuregroupchina.com/wp-content/uploads/2021/09/Family-Office-Services-Sydney-640x640.jpg
https://www.azuregroupchina.com/wp-content/uploads/2021/06/img-floater-1.png
https://www.azuregroupchina.com/wp-content/uploads/2021/06/img-floater-2.png
https://www.azuregroupchina.com/wp-content/uploads/2021/06/img-floater-10.png
https://www.azuregroupchina.com/wp-content/uploads/2021/06/img-floater-9.png

Other types of Foreign Investment:

Joint Ventures (JV)

Equity Joint Ventures (EJV)
– An EJV must take the form of a limited liability company.
– The profits and losses of an EJV must be allocated according to the ratio of capital contributions made by the joint venture partners.

Cooperative Joint Ventures (CJV)
A CJV offers more flexibility to the parties involved because they can decide how the profits and losses will be allocated among themselves and this need not be in proportion to their respective capital contributions.

Limited Liability Company (LLCs)
  • A foreign-invested limited liability company is managed by the board of directors or an executive director, which are appointed or elected by company’s shareholder(s). The boards or the executive director also have the right to appoint the general manager, who directs senior management to the day-to-day operation of the company.
  • LLC is an independent legal entity.
  • The total assets of a limited company are not divided equally, shareholder(s) in this kind of company shall bear limited liability according to the amount of their capital contribution.
  • LLCs cannot be listed and they can only seek private funds but not public offerings.
  • LLCs are not required to disclose financial, production, operation and management information to the public.
  • A LLC can be restructure into a company limited by shares.
  • LLCs can only have up to 50 shareholders.
Companies Limited by Shares (CLSs)
  • The shareholders meeting has the highest authority of a company limited by shares, this assembly has rights such as making company decisions and appointing and dismiss directors.
  • A CLS is an independent legal entity.
  • The total assets of companies limited by shares are divided equally to shares, shareholder(s) in this kind of company shall bear limited liability according to the amount of their holding shares.
  • The CLSs can be listed and they have the right to issue shares to the public in accordance with relevant regulations.
  • The CLSs shall disclose their financial status and production and operation status to the public in accordance with relevant regulations.
  • There is no limit to the number of shareholders.
Partnership
  • Partnerships are not independent legal entities.
  • Partners’ liabilities are depending on the types of partnership, a general partnership or a limited liability partnership.
  • Partnerships cannot be listed and they can only seek private funds but not public offerings.
  • There is no need for partnerships to disclose financial, production, operation and management information to the public.
  • A partnership cannot be restructured to become a company limited by shares.

Our Latest Insights

Registering a company in China: Foreign Bank or Local Chinese Bank?
Registering a company in China: Foreign Bank or Local Chinese Bank?
One of the legal requirements when registering a company in China is opening a bank account. China’s local banks and foreign banks vary a lot from each other in many aspects. As a foreign business, it’s necessary to figure out which bank should choose.
October 3, 2021
China setup: 8 Tips to help you easily generate your business names in Chinese
China setup: 8 Tips to help you easily generate your business names in Chinese
In China, only a company’s registered name in Chinese is legally binding. When applying for registration, the brand name, industrial selection, and registration area should be listed. The typical format for a company name is Registered Area Name + Brand Name + Industry Type + Co., Ltd. Or Brand Name + (Registered Area Name) + Industry Type + Co., Ltd.
September 10, 2021
Registering a company in China: Do I need to make Company Chops?
Registering a company in China: Do I need to make Company Chops?
Having company chops are mandatory if you want to start a business in China. According to the PRC Company Law, the company chops (or seals, stamps) can be used as legal evidence and represent business activities.
September 5, 2021
Social Insurance Exemptions for Foreigners working in China
Social Insurance Exemptions for Foreigners working in China
In China, social insurance includes five different types of insurance, including pension, medical, unemployment, work-related injury, and maternity insurances. If you are from one of the following countries that have signed a social insurance agreement with China, you are entitled to a social insurance exemption, once approved, you and your employer may save unnecessary insurance costs from this benefit.
August 12, 2021
Australian setup: Is Australia an attractive market for UK business to Expand into?
Australian setup: Is Australia an attractive market for UK business to Expand into?
Many foreign companies which have registered a business in Australia in the last two years are growing steadily. Australia is among the countries with the largest GDP worldwide, and thus one of the largest economies.
July 25, 2021
How long should you keep accounting records?
How long should you keep accounting records?
According to the Accounting Records Management Method, the accounting files in China refer to various forms of accounting information, such as text and charts with preservation value, which are received or formed in the process of accounting and could record and reflect the economic business matters.
July 13, 2021
China’s latest preferential Tax policies
China’s latest preferential Tax policies
There are three types of tax preferential policies issued by the Chinese government this year: New preferential tax policies, Continue with some of the COVID-19 relief tax policies introduced in 2020 and Extending the implementation period of some previous tax incentive policies.
April 27, 2021
Starting a business in Australia Checklist – Before, During and After!
Starting a business in Australia Checklist – Before, During and After!
If you want to start your own business in Australia, you will need to know where to find the right information and support quickly and easily. This will position you and your business for success.
November 18, 2020
bt_bb_section_top_section_coverage_image
bt_bb_section_bottom_section_coverage_image
https://www.azuregroupchina.com/wp-content/uploads/2021/06/img-floater-12.png
https://www.azuregroupchina.com/wp-content/uploads/2021/06/img-floater-13.png
https://www.azuregroupchina.com/wp-content/uploads/2021/06/img-form-2.png
How can we help you?