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LEGAL STATUS OF
A REPRESENTATIVE OFFICE IN CHINA
Legal Status of Permanent Representative Offices
Permanent Representative Offices (ROs, also known as Resident Representative Offices) are Chinese legal entities
because they are registered under the Chinese laws.
However, Chinese laws do not expressly provide that
ROs should bear liabilities independently with their
own assets (i.e. limited liability), ROs may be deemed
to be part of the foreign enterprise. As a part of the
foreign enterprise, the foreign enterprises should bear
liabilities of the Permanent Representative Office with all its assets. It the assets
of the RO are not sufficient to satisfy its liabilities,
the foreign parent enterprise should be responsible
for the liabilities of the Permanent Representative Office. However, it is not clear
as to the extent of liabilities to be borne by the foreign
enterprise if a Permanent Representative Office exercises its authority which exceeds
its business scope.
Moreover , a Permanent Representative Office will subject the foreign enterprise
to the jurisdiction of PRC courts. According to Chinese
laws, if a foreign enterprise establishes a Permanent Representative Office in China,
the Chinese court in the location where the Permanent Representative Office is located
has jurisdiction over the foreign enterprise in respect
of disputes arising from contracts or other property
rights. This is a significant issue which a foreign
enterprise should consider before it decides to set
up a Permanent Representative Office in China.
When a foreign company considers whether or not to
establish a Permanent Representative Office in China, it should research whether
or not there are bilateral judicial assistance treaties
between the home county and China. Bilateral judicial
assistance treaties provide for a basis enforcement
of civil judgments. If there is a bilateral judicial
assistance treaty between a foreign country and China,
a civil judgment rendered by a Chinese court usually
can be enforced in that foreign country. Otherwise,
such civil judgments are difficult to be enforced in
other countries in the absence of a bilateral judicial
assistance treaty on the-enforcement of civil judgments.
Currently, there is no bilateral judicial assistance
treaty between China and the United States of America,
it is very difficult for a PRC civil judgment to be
enforced in the USA and vice versa. Therefore, jurisdiction
is not an issue for American companies. However, enterprises
located in countries that have bilateral judicial assistance
treaties with China should consider the jurisdiction
issue. In order to avoid this problem, the best way
is to use a company located in a country that does not
have a bilateral judicial assistance treaty with China.
Foreign companies may also want to set up a shell company
in a country that has a bilateral judicial assistance
treaty with China. However, local approval authorities
have their specific requirements for the qualification
of foreign enterprises that apply for establishment
of Permanent Representative Offices in respect of the amount of capital and how long
the foreign enterprises have been in existence. The
shelf company must meet these requirements before the
application for registration will be approved.
See also:
Introduction to China Permanent Representative Offices
Permanent Representative Offices Registration Procedures
Legal Status of Permanent Representative Offices
Business Scope of Permanent Representative Offices
Responsibilities of Chief
Representative of a Permanent Representative Office
Taxation of Permanent Representative Offices
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