Guidance on WFOEs (Wholly Foreign Owned Enterprises), EJVs (Equity Joint Ventures) and CJVs (Cooperative Joint Ventures), as well as Contractual Joint Ventures.
You have to decide a company type before starting the procedure of business registration, today, SMEsChina prepares a guidance on the difference and requirements among EJVS, CJVS, and WFOEs for setting up a limited company. Also, if you need a local lawyer to get more details of wholly foreign owned enterprise and joint venture, you may contact SMEsChina online lawyers at once.
Definitions of EJVS CJVS and WFOEs
EJVs, CJVs and WFOEs included different management structure and core positions in accordance with the Chinese company laws and relevant implemented regulations and rules.
What is Chinese EJVs
EJVS, as well as equity joint ventures in China, the main form of expression is, parties of the joint venture can enjoy the profits after taxation and acceptance of risk depending on each proportion of shares. The form of equity investment can be cash, equipment, plant, technology, land tenure or other monetary units. Corporate risks and profits based on equity. It is characterized by joint investment, joint operation, joint risk and profit sharing.
Definition of a Chinese WFOE, WOFE or a FICE
Wholly foreign owned enterprises (WFOE), or WOFE ( wholly owned foreign enterprises), or FICE (foreign invested commercial enterprises), 3 appellations are the same situation, mean the Chinese company’s shares wholly owned by foreign investors (shareholders, owners). Currently, WFOE is the most popular investment tool for foreign investors to jump into the Chinese market. No nationality restrictions for foreign owned enterprises to set up a business in China, the shareholder(s) of the company can be oversea existed brands and companies, or nonresidents (oversea individual shareholder). Foreign shareholder(s) as the owner(s) to enjoy the 100% profits.
What is a CJV in China
CJVs, known as cooperative joint ventures, as well as contractual joint ventures, the main form of expression is similar to equity joint ventures (EJVs). But there are still have fundamental differences, cash investment, equipment, land, technology and labor provided by all parties shall not be used as capital stock, the distribution of profits is based entirely on the cooperative agreements signed by the parties. The contractual joint venture is contractual. The Chinese and foreign parties do not take the amount of investment or equity as the basis for profit distribution, but specify the rights and obligations of each party by signing a contract.
Brief List of Difference Among EJVS, CJVS and WFOEs
| Difference | EJV | CJVs | WFOEs |
|---|---|---|---|
| Joint Venture Way | In equity joint venture, both parties of the joint venture shall jointly invest and operate, and jointly assume risks and losses according to their respective proportion of capital contribution. | The Chinese and foreign parties shall not take the amount of investment or equity as the basis for profit distribution, but shall specify the rights and obligations of each party by signing a contract | Foreign individual investors or institutional investors participate in the management of the company, appoint the management teams, enjoy profit sharing |
| Organizational form | For a limited liability company with all the property owned by joint parties | Can be a limited company, also can be the enterprise that does not have Chinese legal person qualification | Owned by foreign shareholder(s) and as a limited liability company in China |
| Investment recovery method | In the joint venture, the foreign joint venture can only recover its own capital when it is dissolved in accordance with the law | The foreign party may recover its investment first under certain conditions | Recover the investments depending on foreign shareholder’s decision |
| Administrative organ | The board of directors and the board of directors shall direct the operation and management bodies below, and the board of directors shall be the highest authority | The board system can be adopted, the joint management committee system can be adopted, and the entrusted management system can be adopted | Wholly decided by foreign owners (shareholders) |
| Profit distribution method | Net profit shall be distributed in proportion to the equity of each party | Profits shall be distributed in the manner and proportion as agreed upon in the contract | Wholly decided by foreign owners (shareholders) |
Requirements of Setting up JVs or WFOEs
| Documents List | EJVs | CJVs | WFOEs |
|---|---|---|---|
| Chinese Shareholder(s) | Original approved business license and company stamp | Original approved business license and company stamp | None |
| Foreign shareholder(s) | Certified certificate of registration of foreign company | Certified certificate of registration of foreign company | Certified certificate of registration of foreign company |
| Board of directors | Appointment and removal documents and proof of identity (foreigners provide copies of passports, Chinese provide original ID card) | Appointment and removal documents and proof of identity (foreigners provide copies of passports, Chinese provide original ID card) | Not mandatory |
| Executive director (legal representative) | Appointed by shareholders, nonresidents provide passport certified by the Chinese embassy, Chinese provide original ID card | Appointed by shareholders, nonresidents provide passport certified by the Chinese embassy, Chinese provide original ID card | Appointed by shareholders, nonresidents provide passport certified by the Chinese embassy, Chinese provide original ID card |
| Supervisor | Appointed by shareholders, nonresidents provide passport copy, Chinese provide original ID card | Appointed by shareholders, nonresidents provide passport copy, Chinese provide original ID card | Appointed by shareholders, nonresidents provide passport copy, Chinese provide original ID card |
Other Guidance of Setting up a Chinese Company
After you deciding to launch a business as a wholly foreign owned enterprise or joint venture, you have to decide the register information as following steps to get started.
| Steps: | Topics of Study: | Links of Reference: |
|---|---|---|
| Step 1 | Decide what types of company, depends on your key structure of corporation (shareholder’s structure). | Selecting a company type |
| Step 2 | How to choose an available company name with bilingual for your private limited company. | Naming rules and requirements |
| Step 3 | List detail business activities from 10 industrial categories. | Selecting business scope |
| Step 4 | Set up the registered capital for your limited company. | Company registered capital |
| Step 5 | Set up core people of your local corporation, and key positions. | Decide corporate structure |
| Step 6 | Required documents you have to prepare in your country. | Documents required to register a company |
| Step 7 | Prepare notarization and authentication documents issued by China embassy. | Notarization and authentication documents |
| Step 8 | Download application forms and legal files and after filling and signing, courier to SMEsChina offices. | Company formation documents download |
Timetable of Set up a WFOE or Joint Venture
| Description of Each Step: | Time Required: |
|---|---|
| Chinese company name submit, search and obtain approval | 3 working days |
| Download and signature of the required documents of company formation (see below) and courier to SMEsChina | 5 working days |
| Obtain the certificate of foreign owned (investment) enterprise and the certificate of business registration (known as: business license) | 5 working days |
| Apply for the company stamps (known as corporate seals) and obtain approval | 2 working days |
| Open a local corporation bank account and internet banking | 5 working days |
