Shanghai Joint Venture Establishment Service
Hotline: 86-755-82143410 Email: 2355725105@qq.com
Joint Venture Establishment is also called JV formation, JV registration, JV incorporation and JV establishment.
A Joint Venture is a business arrangement in which the participants create a new business entity or official contractual relationship and share investment and operation expenses, management responsibilities, and profits and losses.
The Chinese authorities encourage foreign investors to use this form of company in order to obtain exposure to advanced technology and new management skills. In return, foreign investors can enjoy low labor costs, low production costs and a potentially large Chinese market share. Joint Ventures are sometimes the only way to register in China if a certain business activity is still controlled by the government. e.g. Restaurants, Bars, Building and Construction, Car Production, Cosmetics etc.
Joint Venture Establishment-Nature of JV Project
1. The principal differences between an EJV and a CJV can be simply summarised as follows:
- For an EJV:
Each party must make cash or permitted contributions in proportion to its subscribed percentage of the EJV's registered capital.
Profit must be distributed strictly in accordance with the parties' respective percentage shareholding of the registered capital of the EJV.
Upon dissolution of the EJV at the expiry of the term of operation, the EJV's net assets are to be distributed to each party in accordance with its respective shareholding of the EJV's registered capital.
- For a CJV:
A party (typically, but not always, the Chinese party) may contribute non-cash intangibles in the form of "cooperative conditions". Such "cooperative conditions" may consist of market access rights, rights to use buildings or office space owned or leased by the party that are not subject to clear valuation. In exchange for such "cooperative conditions", the party is entitled to participate in the distributable earnings of the CJV.
Profit sharing in a CJV need not be made strictly in accordance with the parties' respective percentage shareholding of the registered capital of the CJV but can be made in accordance with the agreement of the parties (e.g. the Chinese party may be entitled to a fixed profit share with the balance to be distributed to the foreign party, or the parties may agree on a multi-tiered profit-sharing arrangement that permits the foreign party to recover an amount equal to its capital investment on a priority basis, following which the profit split will be changed, etc.).
Upon dissolution of the CJV at the expiry of the term of operation, the CJV's net assets may be transferred to the Chinese party without compensation (thus operating in many respects as a BOT project) so long as the foreign party has been able to recoup its capital contribution during the term of the CJV. Such recoupment typically is funded by excess cash flow generated by accelerated depreciation of the CJV's assets. Such arrangement requires approval of relevant finance and tax authorities in China. Note that this capital recoupment is separate and distinct from possible priority rights to receive after-tax net profit distributions as outlined in the bullet point above.
Joint Venture Establishment Contact us
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