Opening a company in China has its own challenges, from company designations to management practices. This simple guide is intended to give an overview of the elements you will need if you consider establishing and starting the business of your dreams. To choose your type of business and understand its requirements, below are the main types of foreign businesses that you can choose to operate in China. Each has its special considerations and registration procedures. Understanding the advantages and disadvantages of each is an important step to ensure that you know your rights and restrictions when opening a company in China.
Wholly foreign – owned enterprise or WFOE: WFOE are the most common type of business founded by foreign entrepreneurs in China. Its advantages include a high degree of autonomy, use of foreign currency, and a relatively easy process of sending remittances.
Equity Join Venture or EJV: In a joint venture, you must register your business with a Chinese partner. This structure allows you to use foreign currency and decide the ownership and distribution of shares with flexibility. The biggest advantage of a joint venture is the protections that the operation with a Chinese partner can bring against changes in regulations. In addition, partnering with a Chinese citizen allows access to more connections and know-how is a Chinese environment.
Contractual or Cooperative Joint Venture or CJV: Similar to an EJV, a CJV allows sharing the risk and benefits between two companies that are recognized as a single legal entity. The main advantage of a CJV compared to an EJV is that they allow a more flexible contribution between both parties.
Representative Office ( RO): As the name suggests, the main objective of a representative office is to serve as a position for a foreign company in China. They are easy to establish and have a low cost, but they have many restrictions to operate. They cannot generate profits in China, which means they cannot accept payments, issue invoices, or sign contracts. The function of a representative office is limited to the purpose of exploring clients or suppliers, attending fairs, or business meetings.
Foreign Invested Partnership Enterprise or FIPE: They are the latest addition to the list of types of businesses in China. FIPEs offer a simple establishment process and no initial capital is required. Although its benefits can be tempting, FIPEs can be high-risk businesses, since the founders are responsible for risks and losses.
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