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Company Formation in China

The company formation process in China has 14 stages. These are as follows:

• Obtain a pre-approval notice of the company name, which takes a day.
• Open a preliminary bank account in which to deposit funds and obtain proof of deposit. This takes a day.
• Obtain a report verifying company capital from an auditor. This takes 2 days and costs approximately 350 RMB.
• Obtain registration certification, which takes 5 days and costs approximately 0.08% of capital.
• Obtain approval from the police department to make a company seal. This takes 1 day.
• Create the company seal. This takes 1 day and costs approximately 300 RMB.
• Within 30 days of receiving the business licence, apply for the organisation code certificate which is issued by the Quality and Technology Supervision Bureau. This takes 5 days and costs approximately 150 RMB.
• Registration with the local statistics bureau. This takes 1 day and costs approximately 20 RMB.
• Register with tax bureau for state and local tax. This takes 10 days and costs approximately 100 RMB.
• Open a formal company bank account and transfer the capital to the account. This takes a day.
• Apply to the relevant authorities to print or purchase financial invoices and receipts. This takes 10 days.
• Submit an application form to purchase uniform invoices. This takes one day and costs approximately 2 RMB per book of invoices.
• Register with the local career service centre, which takes 1 day.
• Registration with the Social Welfare Insurance Centre. This takes 1 day.

Representative Office

A representative office is commonly the inaugural step taken by foreign businesses when establishing their presence in China. But beware, similar to other countries' policies, they cannot sign contracts in their own name. Chinese regulation permits representative offices to develop business relations and deal with technical support, but they are not allowed to directly operate in .

The benefit to this, however, is that these delegate offices can liaise with Chinese government officials and commercial agencies, which are fundamental to successful business. Representative offices can also arrange business visits from company headquarters, and assume PR and admin work.

Wholly Foreign-Owned Enterprise

A Wholly Foreign-Owned Enterprise (WFOE) is an entity that is 100% owned by foreign investors. They are the most favourable choice for overseas companies wanting to set up a permanently in . The overseas investor maintains complete control over the operations, aims and profits of the company, enabling the parent company to focus on other issues, without needing to consider the option of a local partner.

The operational costs are less than those of a joint venture, and a WFOE will also allow bigger scope for the protection of intellectual property.

However, a drawback to this method, specifically for upstart investors, is that local knowledge and contacts may have to be accumulated without regional help. There will also be capitalisation costs which could prove a hindrance.

Joint Ventures

Joint venture, as in other countries, are organisations jointly owned by a national and a foreign investor. For many years, this was the only option available for a foreign investor. In some areas of business, a joint venture is still the only legal route for permanently establishing yourself in . Uniting with a local partner can be advantageous if you want to sell directly to a Chinese market.

For instance, unlike a WFOE, you will have access to your partner's contacts and local knowledge. But the biggest obstacle you may face is finding a partner you can work with, and, likewise, wants to work with you.

Many joint ventures fail as a consequence of simple miscommunication or misunderstanding, or even clashing business approaches or practice. It is recommended that you chose a partner who complements your style and ethic.

Be vocal and prepare your exit strategy from the outset. It is uncommon that these partnerships are last forever. It's much easier to have a prenuptial agreement than an acrimonious divorce.

Offshore Companies

By choosing to incorporate an offshore company, business owners and investors can set-up a business outside the jurisdiction of itsoperations. Offshore companies are traditionally, but not exclusively,incorporated for lower fees and taxes. Business owners must abide theregulations of the offshore jurisdiction, and must not trade within thejurisdiction.

The benefits are vast. As aforesaid, reduced tax and fees are oftenbig factors when considering offshore incorporation. A company may alsochoose and offshore location to:

• Simplify set-up and maintenance - entrepreneurs may find bureaucracy and red tape less of an obstacle in offshore jurisdictions
  
• Assume anonymity - the names of owners and directors are not forpublic record, and references to the company may only be made in itsregistered agent
  
• Ensure legal protection - for instance, some jurisdictions favourcorporate governance, meaning a company is only liable to offshore lawsas opposed to those in its areas of operation
  
• Protect assets - business owners may opt to arrange their assetsand transactions in such a way that protects them from liability
  

Characteristics of an offshore company:

• Memorandum and Articles of Association
  
• Certificate of Incorporation
  
• Registered Office/Agent
  
• Shareholders / Members
  
• Directors / Managers
  
• Company secretary
  
• Statutory Register
  
• Bookkeeping
  

Traditional locations for offshore incorporation are tax havens,such as the British Virgin Islands, Panama and Monaco. Other favouredareas include India, the Bahamas, Dubai, the Cayman Islands, Cyprus,Seychelles, Marshall islands, Delaware, Turks & Caicos Islands,Hong Kong, Jersey, Guernsey and the Isle of Man.

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