China is one of the global economic hubs that investors are looking to for growth and success. After opening its market to international trade, its economy has progressively changed from an agro-based to a tech-driven one. 

So, if you want to open a business in China and grow into the multinational of your dreams, the first thing is selecting the right business formation, which includes wholly foreign-owned enterprise (WFOE), Joint venture (JV), and representative office (RO).

Wholly Foreign-Owned Enterprises (WFOES)

In China, WFOEs are the most popular with foreigners looking forward to doing business in China. As the name suggests, a WFOE is a business that is fully owned by a foreigner, implying that you get full control of the business decisions.

WFOEs are registered and operated in China as limited liability companies, implying that your liability as a shareholder only extends to the shareholding you have in the company. 

This means that in the unfortunate event, such as the company being unable to meet its financial obligations, no one will come after your personal items or money stored in your bank account.  

Joint Venture (JV)

Joint ventures in China are the opposite of WFOEs. To open a joint venture in China, you are required to enter into a partnership with a Chinese partner. Joint ventures can be broken into two:

  • Equity Joint Ventures where the profits and risk-sharing are proportionate to the equity that one has in the partnership. 
  • Cooperative Joint Ventures where the profits are shared based on a pre-drawn cooperative venture contract as opposed to the shares that a person holds on the company.

While there are no limitations on the amount that your Chinese partner can contribute in a joint venture, laws on joint ventures require that no foreigner should contribute over 25% of the share capital. 

This implies that in a joint venture in China, your Chinese partner will always have the controlling shares, and, therefore, wield greater control in decision making. 

Representative Office (RO)

A representative office (RO) in China is considered a separate legal enterprise that represents its parent company. It is considered a cheap and fast way to form a legal entity in China. 

However, you should be extra careful when opening a RO because it comes with major limitations, including the following:

  • You will not be able to sign contracts on behalf of your company.
  • The company is not independent and can only work as long as the parent company exists.

Work with Experts for Company Registration in China 

When you decide on the best business formation, the next step is company registration in China. Because the process of registering a company in China is lengthy and involves dealing with different government departments, you should consider working with an expert agency. 

Professional firms have been in the Chinese market for years, and know the mistakes that you need to avoid. Talk to us onthis website, and we will help you to map your way to success, starting with company registration in China

By Eddy

Eddy is the editorial columnist in Business Fundas, and oversees partner relationships. He posts articles of partners on various topics related to strategy, marketing, supply chain, technology management, social media, e-business, finance, economics and operations management. The articles posted are copyrighted under a Creative Commons unported license 4.0. To contact him, please direct your emails to [email protected].