Establishing
Foreign Funded Joint Venture or Cooperative Enterprises
in China
Executive Summary about the Sino-foreign Joint
Venture Enterprises in China
The Sino-foreign Joint Venture Enterprises Law
of the People’s Republic of China regulates that
the foreign investor must invest 25% of the total
registered capital. Generally speaking, there
is no maximum limit for foreign investor regarding
the invested project, unless the Chinese laws
require that the Chinese side should invest according
to the minimum proportion (for example, in some
restricted industry). The registered capital of
Sino-foreign joint venture company should not
be less than RMB one million yuan, and that for
the enterprises located in the bonded area should
not be less than two million yuan.
The two parties can inject the funds through
the means of cash, equipment, industrial property
rights or other forms. Generally speaking, the
Chinese side provided cash, land development rights
and land use rights, etc while the foreign side
provides cash, construction materials, technology
and equipment, etc. All investment should obtain
the approval from the related governmental organizations
of China and should obtain the reports issued
by China CPA firm which possesses certified public
accountant qualification.
The two investment parties should jointly manage
the enterprise. The Board of Directors should
include at least three members, and the board
of directors has the decision rights on the significant
affairs of the enterprises. Both parties should
be jointly responsible for the appointment of
directors to the board and the composition of
the board of directors should be determined according
to the investment proportion of the two parties.
According to the Sino-foreign Joint Venture Enterprise
of the People’s Republic of China, both the investment
side may select the Chairman of the Board of Directors.
If the representative of one party fills the Chairman
of the Board, then the representative of the other
party can fill the responsibility of Vice Chairman
of the Board of Directors.
Executive Summary about the Sino-foreign Cooperative
Enterprises in China
The cooperative enterprise should be regulated
according to the Sino-foreign Cooperative Enterprises
Law of the People’s Republic of China; for all
cooperative enterprises which meet the requirements
for the legal enterprise qualification may be
endowed with the such qualification. However,
some cooperative enterprise might also possess
no qualification of legal person. If the organization
mode of the enterprise is limited liability company,
then the cooperative enterprise may possess all
ownership rights on the assets of the enterprise,
but the responsibilities should be borne by the
two parties according to the investment proportion
of the two parties.
Joint venture enterprises should be regulated
according to the Sino-foreign Joint Venture Enterprises
Law of the People’s Republic of China, which was
published in 1979 and of which latest revision
was made in 2000. Solely foreign-funded enterprise
is some limited liabilities company which completely
controlled by the foreign investor(s). All overseas
legal person or natural person (more than one
shareholder) can register such type of enterprise.
All foreign funded enterprises in China are established
on the basis of stimulus for the production type
of enterprises; therefore, the enterprises carry
out the exports-oriented production and introduce
the advanced technology. However, with China’s
accession to the WTO, the situation will change
and the more service providers from overseas have
established their offices in Mainland China. We
have observed the emergence of many consulting
and management firms, software developers and
trading companies (at present, the trading companies
are limited to the location of bonded areas).
The two investing parties may input the funds
through the means of cash or other ways, for instance,
land use rights, industrial property rights and
other funding forms approved by the Chinese government.
The foreign side generally provides cash, technology
and equipment, while the Chinese side generally
provides land or the plant. The cooperative two
parties may, at their discretion, within some
limitation, freely negotiate and stipulate the
issues such as their rights, obligations, risks
share proportion, the ownership after the cooperation
period expires, etc in the cooperation contract.
Quite different from the joint venture enterprises,
the cooperative enterprises are not required to
meet the requirements that the profits allocation
proportion and the directors assignment proportion
should be in line with the funding proportion.
For those cooperative enterprises which are organized
in the mode of limited liabilities company, it
is required to establish the board of directors
or joint management committee, which should determine
and manage the big issues of the enterprises.
If the representative of the Chinese side fulfills
the post of Chairman of the Board, then the representative
of the foreign side should take the responsibility
of Vice Chairman of the Board. It is applicable
vice versa.
The cooperative enterprise will come into being
after the two investment parties have reached
the contract clauses regarding the establishment
of cooperative enterprises and obtain the approval
from the related departments. The establishment
procedures are of the same to those procedures
for the establishment of Sino-foreign cooperative
enterprises.
The Advantages of Sino-foreign Enterprises and
Sino-foreign Cooperative Enterprises
- The share of resources and supplementary
advantages can be realized;
- The enterprises possess independent declaration
rights, and enjoy the preferential policies
in the equipment and commodities imports and
exports;
- The enterprises may enjoy other preferential
polices granted by the local governments;
- The enterprises may make use of the resources
of the Chinese sides, which are helpful for
the rapid development of the enterprises and
the occupation of the market.
Documents Required for the Application
- The Business License and Business Commencement
Certificate of the Foreign Investor;
- Original credit certification issued by the
bank of the foreign investor, showing the credit
conditions of the investor;
- Resolution of the Board of Directors of the
foreign investor;
- The photocopy of the ID Card or the passport,
and two photos of the legal representative of
the foreign investor;
- One original office place leasing contract
(one formal contract of the leased office place)
- The Appointment Letter(s) for the Chairman
and the members of the Board of the Directors;
- Detailed information of the members of the
Board of Directors;
- The feasibility report and the article of
the purposed China-based company; if there are
more than one investment party, then it is required
to provide the agreement between the investors,
showing the rights, obligations and investment
proportion of the two parties, as well as the
rules for of business affairs discussion and
disputes settlement, etc.; and
- One original Enterprise Registration Entrusting
Letter.
Application Procedures and Time
Signing the entrusting letter→submitting the
required materials→signing the application files→obtaining
approval documents issued by the foreign investment
supervising departments→obtaining approval documents
from the environmental protection bureau→pre-numbering
of the enterprise→Business License issued by the
local Administration for Industry and Commerce
→ handling the state tax and local tax registration
at the taxation bureau→enterprise coding card→prepare
the seals under the supervision of the local Public
Security Bureau→Opening a bank account at the
bank→handling the foreign exchange registration
certificate→formally handling the customs registration
certificate→It takes about 25 days to finish the
work
Documents Obtained When the Application is Completed
Documents issued by the Foreign Economic and
Trade Bureau(s)(The establishment of the project)/Approval
Certificate issued by the Foreign Economic and
Trade Bureau(s)/Original and Duplicate Copies
of the Business License/Original and Duplicate
Copies of the Local Tax and State Tax Certificate/State
and Local Taxation Registration Forms/Registration
Card for the Application of Seal Carving/Corporate
Article/Environmental Protection Approval Documents/Enterprise
Coding Certificate/Foreign Exchange Registration
Certificate/Basic Bank Account/Customs Registration
Certificate/Corporate Seal, Private Seal and Financial
Seal
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