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Corporation forms for Foreign Direct Investment (FDI) in China

Time:2014-03-13 Hit:202


Corporation forms for Foreign Direct Investment (FDI) in China


1. Equity joint venture:

   The equity joint venture is the joint venture between Chinese and foreign ventures where profits and losses are distributed between them in proportion to their respective equity interests in the registered capital of the equity joint venture. It takes forms of limit Liability Company (hereinafter referred to as LLC) and it a Chinese enterprise legal person. The equity joint venture contract and articles of association are required. The board of directors is the highest body of its corporate governance, and the management conducts day-to-day business.


2. Contractual joint venture:

  It is a very flexible foreign invest enterprise from where Chinese and foreign venturers have more contractual freedom to structure the cooperation. The Chinese and foreign venturers may distribute profits and losses in accordance with specific provisions in the contractual joint venture contract, not necessarily in proportion to their respective equity interests in the contractual joint venture. It may be organized as the LLC, and in such cases, the foreign venturer must contribute more than 25% to the registered capital of the contractual joint venture. It permits capital recovery during the venture term, the board of directors is the highest body of its corporate governance, and the management conducts the daily business operation.

   The contractual joint venture may be a business organization with a joint management committee but no separate legal personality. In this case, it is similar to a partnership arrangement between Chinese and foreign parties. Both parties may incur unlimited joint and several liabilities for debts of the contractual joint venture.


3. Wholly foreign-owned enterprise:

  This is the currently preferred form in China and accounts for the largest number of approved foreign invest enterprises; it is usually organized as LLC. The board of directors is the highest body of corporate governance. In contrast with the equity joint venture and the contractual joint venture, the foreign investors enjoy greater control over the management and production of the enterprise and do not need to distribute profits to Chinese ventures,.

The wholly foreign-owned enterprise may take the non-legal person form subject to approval. Its investors can not enjoy the benefits of limited liability in such a case.



4. Representative office:

  It may be established in China by a foreign company, enterprise or other economic organization. It is subject to the approval by the local COFTEC. Thus it involves relatively simple approval procedures. Upon approval, it shall register with local AICs. It may not engage in direct business operations. It can conduct business liaison, product introduction, market research, some technology exchange on behalf of the foreign enterprise and soliciting sales for a foreign parent. It is usually the initial China market entry vehicle or a foreign trade support vehicle.


5. Branch office:                          

  China contract law broadly allows foreign enterprises to establish branches in China. In comparison with the representative office, it is subject to minimum capitalization requirements and net asset value requirements for the foreign parent. It is able to engage in direct business operations, but the foreign parent must provide a guarantee for its debts. It is the preferred business or investment vehicle for certain service sectors




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