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Wuxi company formation

Update Date:2018-1-12 11:27:18     Source:www.3737580.com     Views:823

Wuxi Company Formation
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RO-Representative Office

Representative Offices (ROs) are established by foreign companies to engage in business liaison, product promotion, market research, exchange of technology and other permitted activities in China .

 

ROs are not allowed to directly engage in operational activities. The AIC usually specifies in the Business Scope, as shown in the Business License of ROs, that a RO should not engage in direct operational activities. Therefore, ROs are not a form of foreign investment in China . However, some ROs are engaged in operations in a lawful or tacitly permitted way and constitute one of the direct foreign Investment forms in China .

 

The tacitly permitted way is applicable to those industries that do not require special material conditions or environment for their operations. For example, a consulting business does not need manufacturing equipment and raw materials. It only needs offices, employees and office articles. These physical conditions are necessary for other ROs as well. In practice, many ROs that are established by foreign consulting companies directly engage in consulting activities. Chinese government does not prohibit them in practice and this is reflected by the fact that the tax authorities collect business tax from these ROs.

 

The lawful operational activities engaged in by ROs refer to those business activities permitted pursuant to the bilateral treaties between China and other countries. In the event that a bilateral treaty provides that certain types of ROs are permitted to engage in operational activities, these bilateral treaties should prevail over Chinese domestic law.

WFOE -Wholly Foreign Owned Enterprise

The registered capital of a Wholly Foreign Owned Enterprise (WFOE) should be subscribed and contributed solely by foreign investors. A WFOE does not include branches established in China by foreign enterprises and other foreign economic organizations. The Chinese Laws on Wholly Foreign Owned Enterprises does not have a clear definition of the term "branches". The term "branches" should include both the branch companies engaged in operational activities and representative offices, which are generally not engaged in direct business activities. Therefore, branches and representative offices set up by foreign enterprises are not WFOE.

 

The Wholly Foreign Owned Enterprise (WOFE) is a Limited liability company wholly owned by the foreign investor(s). With China 's entry into the WTO, more and more investors prefer to set up WOFE other than other enterprises forms.

 

Because WOFE has its own advantages, it has been the most preferred enterprise form for foreign investor to set up. In general, the The advantages of establishing a WOFE include, but not limited Independence and freedom to implement the worldwide strategies of its parent company without having to consider the involvement of the Chinese partner; Ability to formally carry on business rather than just a representative office function and capable of issuing invoices to their customers in RMB (Chinese Currency) and receive revenues in RMB ;Capable of converting RMB profits to US dollars for remittance to their parent company outside China ;Protection of intellectual know-how and technology; Greater efficiency in its operations, management and future development.

 

EJV -Equity Joint Venture

Equity joint ventures are the second most common manner in which foreign companies enter the China market and the preferred manner for cooperation where the Chinese government and Chinese businesses are concerned. Joint ventures are usually established to exploit the market knowledge, preferential market treatment, and manufacturing capability of the Chinese side along with the technology, manufacturing know-how, and marketing experience of the foreign partner.

 

Normally operation of a joint ventures is limited to a fixed period of time from thirty to fifty years. In some cases an unlimited period of operation can be approved, especially when the transfer of advanced technology is involved. Profit and risk sharing in a joint venture are proportionate to the equity of each partner in the joint venture, except in cases of a breach of the joint venture contract.

 

Share holdings in a joint venture are usually non-negotiable and cannot be transferred without approval from the Chinese government. Investors are restricted from withdrawing registered capital during the live of the joint venture contract. Regulations surrounding the transfer of shares with only the approval of the board of directors and without approval from government authorities will probably evolve over time as the size and number of international joint ventures grow.

 

There are specific requirements for the management structure of a joint venture but either party can hold the position as chairman of the board of directors. A minimum of 25% of the capital must be contributed by the foreign partner(s). There is no minimum investment for the Chinese partner(s).

 

It is preferable that foreign exchange accounts are balanced in order to remit profits abroad so that the repatriated foreign exchange is offset by exports from the joint venture. With the elimination of foreign exchange certificates and the further opening of the China market, this requirement is becoming more and more relaxed.

 

Equity can include cash, buildings, equipment, materials, intellectual property rights, and land-use rights but cannot include labor. The value of any equipment, materials, intellectual property rights, or land-use rights must be approved by government authorities before the joint venture can be approved.

 

After a joint venture is registered, the entity is considered a Chinese legal entity and must abide by all Chinese laws. As a Chinese legal entity, a joint venture is free to hire Chinese nationals without the interference from government employment industries as long as they abide by Chinese labor law. Joint ventures are also able to purchase land and build their own buildings, privileges prevented to representative offices.

 

CJV- Co-operative Joint Venture

Co-operative Enterprises are also named contractual operative enterprises. When Chinese and foreign partners establish a co-operative enterprise, provisions on such items as investment or terms for co-operator, distribution of earnings or products, sharing of risk and losses, method of business management and the ownership of property on the expiration of the contract term shall be prescribed in the co-operative enterprises contract in accordance with the provisions of Chinese law. Convenience and flexibility are the characteristics of this type, therefore it is easier for co-operative partners to reach an agreement. A co-operative enterprise which complies with the provisions of Chinese law for a legal person shall acquire the status of a Chinese legal person.

 

General practice of co-operation is that investment or terms of co-operation provided by foreign partners is in the form of cash, equipment and technology and by Chinese partners is in the form of land-use rights, labour and related services.

 

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