There are numerous options for structuring a venture in China, bearing in mind that relevant laws in China are continuously changing and must be monitored.
The following are the most common:
- Joint venture with a Chinese company,
- 100% foreign owned company, a Wholly-Owned Foreign Enterprise (“WOFE” ),
- Representative office (“RO”),
- Hong Kong company.
This sequence reflects the complexity of the individual formation process as well as financial and time considerations:
- While a joint venture requires thorough due diligence on the local partner, it can be quite complicated, involving extensive contract negotiations and substantial financial risks,
- A WOFE remains independent while subject to the jurisdiction, review and approval of local authorities,
- There are fewer restrictions and obligations for RO’s because the financial commitments are much lower and easier to calculate and as a result many foreign companies choose to start their China activities by establishing a RO.
Its main disadvantage, however, is being limited on what it is allowed to do being permitted to only represent its home company by distributing marketing material and communicating inbound and outbound information. Most importantly, it is not allowed to actively carry out business transactions including entering into sale and purchase agreements.
- A Hong Kong company is the most flexible entity and, as a result, widely used for business activities in China.
It is regulated on the basis of British law providing a great degree of predictability and reliability.
Hong Kong companies are extremely well-suited for doing business in China both for purchasing and selling purposes as well as a payment entity for as the foreign entity which sets up the representative office in China. There is a wide variety of legal, tax, and business structuring options.
CHEURAM is a recognized expert on the formation of Hong Kong companies.
China: Your new frontier - we´re already there!