Types of Business Organisations in available in Shanghai
The principal forms of business entities available to foreign
investors in Shanghai are:-
(1) Foreign Investment Enterprises
(a) Equity Joint Venture (EJV)
(b) Cooperative Joint Venture (CJV)
(c) Wholly Owned Foreign Enterprise (WOFE)
(2) Foreign Enterprises
(a) Representative office (RO)
(b) Branches of Foreign Enterprise
(c) Enterprises other than those listed above that have establishments
or places of business in China and engage in production or
business operations, e.g. factory, places for exploitation
of natural resources, contracted project sites.
Laws and Regulations Relating to Formation of Business
Entities
When choosing among different forms of business entities,
it should be noted that not all types of entities are available
for all kinds of industries. The formation, organisation,
management of most of these entities are governed by their
respective laws and regulations, which are special laws relating
to the particular form of business entities in question. In
1994, the first company law of China, which is a “general
law”, was enacted. Briefly speaking, special law should
be used and general law should only be relied upon in circumstances
when there is no provision in special law.
The laws governing the establishment and management of business
entities in Shanghai are:
General Law
Company Law of PRC
Special Law
Law of the PRC on Chinese Foreign Equity Joint Ventures
Law of the PRC on Chinese Foreign Cooperative Joint Ventures
Law of the PRC on Enterprises Operating Exclusively with Foreign
Capital
EJV, certain CJV and WOFE are limited liability companies.
Foreign investors cannot set up solely owned Joint Stock Company
but may set up Joint Stock Company with Chinese partners.
Joint Stock Company can be established through promotion or
share offering. Currently, PRC government encourages the setting
up of JSC only in high-technology production industries. The
minimum capital requirement is RMB30 million and the foreign
investor should not own less than 25% of the registered capital.
General Procedures for Setting up a Business Entity in
Shanghai
Application procedures for different types of Business Entities
are different. Please refer to our respective Fact Sheets.
In general, it is a two-step procedure Step one: applicant
should obtain approval from respective authorities. Step two:
registration made with the Administration for Industry and
Commerce.
Approval Authorities
Authorities for approval are distributed among various State
Council Departments and are delegated to their local offices.
Please refer to our Fact Sheets.
Criteria for Granting Approval
Please note that the Shanghai Government works on an “approval
system’ instead of a “registration system’,
that is, the application may be rejected without any reason
given.
Nevertheless, Shanghai has been reckoned as having the most
liberal policies in approving establishment of business in
the country. However, the following criteria have been considered
beneficial to the City and therefore approval is more likely
to be secured:
(1) The enterprise will use advanced technology and equipment
(2) The enterprise will use advanced management technique
and has proven management experience, as reflected by the
status of its parent company.
(3) The enterprise will export all or most of its produced
products.
Moreover, it is important that the necessary requirements
be fulfilled and documents required by the government be fully
and accurately submitted. Some of the requirements are:
(1) The parent company/investor should have at least one to
three years of operating results.
(2) A business address (for commercial operations) located
in a building, which is approved by the government to house
foreign enterprises, is required. For manufacturing concerns,
the factory should be located at a site approved by the government.
(3) For non-Chinese documents, certified translation by approved
translator are required.
(4) Notarization of statutory documents of the parent company
may be required.
Capital Requirement
China adopts a registered capital system. All registered capital
has to be paid up in cash, physical assets or intangible assets.
If capital is not in the form of cash, valuation by a local
“valuation professional” is needed according to
regulations relating to the particular industry.
Strict capital injection requirement should be fulfilled.
“Capital” includes not only registered capital
but also promissory loans from the parent company or financial
institutions. Different regulations for different industries
govern the minimum capital requirements and schedule of injection.
Local auditors should be engaged to issue audit report on
capital injection. If capital is not injected according to
the schedule, business license and certificate granted may
be withdrawn.
Name
The foreign enterprises operating in Shanghai has to submit
its proposed name to respective government department for
approval.
Business Address
A separate business address, located in commercial buildings
or sites approved by the government, is required as the office
/ factory address.
Post establishment Registration Procedures
Upon the issuance of the registration certificate, the applicant
is required to complete post-establishment registration procedures,
including
(1) Opening of bank accounts
(2) Registration with the Inland Revenue
(3) Application of “Enterprise Code”
(4) Preparation of statutory stationery, including company
chops
(5) Registration with the State Statistics Bureau
(6) Registration with the Customs Office.
(7) Application for Employment Visa (For expatriate staff)
Time Required
Depending the types of business entities, it could take somewhere
between 4 weeks to 12 weeks to complete a registration. |