How to set up a business entity in China | finder.com
Business entity China

How to set up a business entity in China

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To incorporate in China, start by choosing the right business structure and hiring knowledgeable liaisons.

China is a lucrative market, one that’s home to a fast-growing middle class. That’s just one of many reasons it may be a smart move to do business in the country.

As it stands, creating a business in China can be a tricky endeavor. But with the right knowledge and expert help, you can incorporate to legally operate in Asia’s largest economy.

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What kind of entity makes sense?

There are four common entities for foreign investors who want to do business in China: wholly foreign-owned enterprise, joint venture, partnership enterprise and representative office.

Wholly foreign-owned enterprise (WFOE)

This is a limited liability company entirely controlled by you. You might not be able to set up a WFOE in certain industries, and you may need government approval in other industries.

It’s not quick or easy to set up a WFOE. However, the WFOE is often considered an effective entity for foreign investors because it affords complete control over business activities.

Joint venture (JV)

In a joint venture, you partner with a Chinese citizen to start a business entity or contractual arrangement. This is a limited liability entity.

Experts warn that a joint venture is unwieldy because partners rarely hold the same business vision. Even still, many individuals choose to enter into joint ventures because they can’t start a WFOE.

Partnership enterprise (PE)

Unlike a WFOE or a JV, you don’t create a legal entity by entering into a partnership. Instead, you simply create a contract between one or more partners to conduct business.

There are other major differences. For example, a PE is an unlimited liability company, so you could be on the hook for full costs incurred through your business. PEs are also excluded from many Chinese industries.

Representative office

Creating a representative office is the easiest way to build a business entity in China. It’s also an inexpensive option. However, a representative office excludes you from performing many operations in the country. For example, you can’t sign contracts or even earn money. Essentially, a representative office gives you a presence in China, and not much more.

Should I hire a professional?

It’s an excellent idea to hire a liaison to navigate tricky incorporation waters. Work with someone from mainland China who speaks fluent Chinese. They’ll interact with officials on your behalf, and they’ll tell you the appropriate places to register your business entity.

The US-China Business Council and US Commercial Service are great places to search for a qualified contact.

What kind of documentation will I need?

Here are a few documents you’ll need to register your business:

  • Certificates of incorporation
  • Bank reference letters
  • Passport copies
  • Resume and photo
  • Description of the scope of your business
  • Lease contracts of Chinese office address
  • Business license

You may need different documentation depending on where you’re registering and which officials you meet with. Strongly consider working with a company that helps foreign investors create businesses in China.
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Where do I file my information?

You’ll submit documentation to China’s Ministry of Commerce and the State Administration of Industry and Commerce. Your business may also need to be approved by other authorities.
Doing business in China: economic snapshot

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Other factors to consider

  • Stating your business purpose. You need to accurately categorize your business with the Chinese government. Some industries don’t allow certain business structures, and you’ll want to correctly identify the business activities you’ll pursue in China.
  • Corporate name requirements. Create a Chinese name for your business entity — it will be the sole legally binding name of your company. You may need approval to use certain words, such as “China” and “international.”

International billing and payments

Your new business will require you to make and receive international payments, which means you’ll make transactions between currencies and across borders.

You can safely and affordably manage your business payments — with lower fees and stronger exchange rates — by comparing the services of a money transfer specialist.

Use a money transfer to manage your international business payments

Companies like Payoneer and XE can help you set up regular transfers to your vendors overseas.

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Bottom line

It’s important to choose the right business entity to operate in China. Consider working with an organization that specializes in helping foreign businesses incorporate in the country — this will streamline your progress and help you avoid pitfalls along the way.

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