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General

The main forms of business organisation used by foreign investors in China are:

• Representative Office;
• Wholly Foreign-Owned Enterprise;
• Foreign-Invested Commercial Enterprise;
• Joint Venture;
• Partnership;
• Holding Company.

Forms of Business Organisation

Representative Office

Representative Offices (Ros) were originally unable to conduct business as such in China, but the rules have been considerably relaxed. Many investors used ROs in illegitimate ways, routing their trading through offshore companies in Hong Kong and elsewhere, which has led the tax authorities to impose ever greater tax burdens on ROs unless they are patently being used simply for market research or similar. Given the improvements that have taken place in Chinese corporate law and the effects of China's WTO entry, there is hardly any point by now in using an RO for anything other than the most basic exploratory or representational purposes. ROs do not have legal personality but can still pay tax.

Wholly Foreign-Owned Enterprise

Originally, Wholly Foreign-Owned Enterprises (WFOEs) were intended for export or high-technology manufacturing, but China's entry into the WTO has led to a gradual broadening of the use of WFOEs into service and trading sectors. The actual limited liability company itself must be formed under The Company Law of the People’s Republic of China, adopted 27 October 2005, effective 1 January 2006. This was an entirely new piece of legislation which brought Chinese company law significantly closer to Western practice.

As with a Representative Office, the formation of a WFOE is conducted under local rules, and central government becomes involved only if the business falls within certain nominated sectors such as financial services, telecommunications and the media. The legal minimum capital under the law is ¥100,000 for a company with multiple shareholders, or ¥30,000 for a single-shareholder company, but the registered capital must reflect the needs of the business and is likely to be far higher than the minimum for most businesses.


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