China Joint Venture

The easiest way to set up a joint venture in China is to first set up a Hong Kong company between a foreigner and a Chinese partner to be used as a shareholding company. With your Hong Kong company, you can set up the joint venture in China, and this operates similarly to a WFOE in terms of its legal structure, although the share structure will be different. There are two types of Joint Ventures: Equity Joint Venture and Co-operative Joint Venture.

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Equity Joint Venture

A foreign investor or company that has the intention of establishing operations in the PRC can do so through a Foreign Equity Joint Venture Enterprise with a Chinese partner. This is a type of limited liability company, where both the Chinese and foreign firms are separate legal entities. All the participants in the venture contribute financially by means of investment capital and each have a stake in the business. The Equity Joint Venture brings together the talents and advantages of each party. It should be noted that the foreign investor in the venture is not able to recover their investment until the joint venture has been terminated.

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Co-operative Joint Venture

Co-operative Joint Ventures have more flexibility than what Equity Joint Ventures offer. Co-operative Joint Ventures operate under the Chinese Foreign Co-Operative Enterprises which was promulgated in 1988 and was amended in 2000. The Chinese Foreign Co-Operative Enterprises allows for individual agreements, such as profit share which are not necessarily restricted to equity contributions. The most significant difference between Co-operative Joint Ventures and Equity Joint Ventures is that the former allows for foreign firms to invest to repatriate their original investment before the joint venture has expired.

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Advantages

Joint ventures nurture business relationships that can benefit both parties, particularly management and financing.

Compared to WFOE companies, joint ventures with Chinese companies can easily garner local and government support.

The complications of setting up an entirely new corporation in China are removed under joint ventures, as both parties conduct business using a Chinese business license with co-operative and contractual arrangements.

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Disadvantages

Joint venture operations require dividing profits between all partners involved.

Foreign companies face more risk entering a joint venture than the Chinese partner, as the foreign firms will have to contribute more funds.

Communication with a Chinese partner, which is vital in a joint venture, may be difficult due to language barriers and cultural differences.

Conflicting interests and objectives may arive between parties.

The parties involved in a joint venture do not have the autonomy when forming decisions, from which sole proprietorships benefit.

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Requirements

Company Name:

A name for a Chinese joint venture in English and Chinese must be submitted to the State Administration of Industry and Commerce (SAIC).

Directors:

A joint venture requires a board of directors appointed by both parties of the venture. Either party in the joint venture can act as chairman of the board of directors.

Shareholders:

In an Equity Joint Venture, each partner has a stake in the company through capital investments, which is similar to shareholders in a limited company. Share holdings are typically non-negotiable.

Company Secretary:

Company secretaries are not required.

Registered Address:

Joint ventures are able to buy land and build their own buildings.

Minimum Capital Requirements:

Ventures between foreign and Chinese companies in an Equity Joint Venture require that the foreign firm has a minimum of 25% capital contribution. On the other hand, there is no minimum percentage requirement for Chinese partners. Both parties share profits, risks and losses proportionately to the contributions on their registered capital. In a Co-operative Joint Venture, there is no minimum contribution for the foreign partner.

Annual Reports:

It is necessary to file reports annually.

Setup Time:

The average setup time for a joint venture in China is around 2 months.

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Basic Package

Business License

Articles of Association

Registration Certificate

Credit Certificate

Company Chop

Services Included

Government fees

Includes business registration certificate.

Reviewing client documentation and application materials

Preparing incorporation documents

Monitoring the entire incorporation process and keeping clients updated

China Joint Venture

Equity Joint Venture

Co-operative Joint Venture

Advantages

Disadvantages

Requirements

Basic Package

Services Included

Additional services

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