If you are an American looking forward to growing your company offshore or opening a startup abroad, China is the unrivalled jurisdiction. China boasts of state-of-the-art infrastructure, a facilitative business environment, and above all, a huge market. These are only a few of the benefits that US entrepreneurs should anticipate after company incorporation as a US entrepreneur. This post takes a closer look at the five things that US entrepreneurs need to know when incorporating companies in China.
The Different Types of Company Formations in China
Once a US entrepreneur decides to open a business in China, there are several options to consider depending on the nature of your business.
- Wholly Foreign-Owned Enterprise (WFOE)
This WFOE type of business allows foreigners to fully own the company in China. It is one of the most preferred formations because you have total control over the operations of the company. For example, you determine who to hire, the strategies to use, and keep all the profits.
- Joint Venture
Unlike a WFOE, a joint venture requires you to form a partnership with a Chinese national. This means that you cannot make decisions about the company alone. Instead, you have to work closely with the Chinese partner in all areas of the business, including hiring staff and sharing profits.
- Representative Office
As the name suggests, this type of company formation is considered an extension of the parent business back in the US. Although easy to start, a representative office comes with major limitations because it cannot enter business deals or receive payments. Therefore, you should consider it when targeting activities such as a search for business partners and market research.
Be as Accurate as Possible with the Scope of the Business
In China, business laws are very strict, especially when it comes to the scope of operations. They put a lot of emphasis on the scope because it determines which areas foreigners can venture into. Here are the main sectors that you should know about:
- Encouraged Industries: These are the main areas where the Chinese administration is seeking foreign investors. Good examples include manufacturing and research and development.
- Restricted Industries: In these industries, investors can venture into them, but there are a number of restrictions, such as special approvals and shareholding ratios. One of the restricted areas is an investment in education institutions.
- Prohibited Industries: The Prohibited industries are out of bounds for foreign investors. If you are targeting these areas, it is important to be creative. For example, you might want to enter into a joint venture with a Chinese company to get access to the prohibited industries.
Understand the Requirements of Incorporating a Company in China
Before you can commence the process of company incorporation as a US entrepreneur, it is important to review all the requirements. Here are the main things that you need to register a company in China.
- Company name.
- List of controlling partners.
- Articles of Association.
- The managerial structure.
- Registered capital.
- A feasibility study.
- Copies of applicable business licenses.
When you decide to incorporate a company in China, it is important to comprehensively understand the process involved and the target market. To make the process more effective, consider working with an agency. Agencies have professionals with experience in company registration, and they can hold your hand through the entire journey, both during incorporation and the early period of establishment.