What Are the Different Types of Companies in China?
Updated on |By QPSoftware
Foreign companies that want a legal presence in China usually choose between three types of companies: a representative office, a joint venture with a Chinese partner, or a wholly foreign-owned enterprise (WFOE). A representative office cannot receive payments from Chinese clients, a joint venture shares control with its Chinese partner, and a WFOE is fully owned by foreign investors.
China is a remarkable market. If you decide to target it, you will face great opportunities but also some threats, so before starting anything, analyze your market and decide what you should do.
China can be your dream market to sell products online with the help of an e-commerce agency in China, or to reach customers through a WeChat agency that builds for foreign brands. You may also simply need to be present online with a corporate site from a web design company in Shanghai.
One of the first things to do is to decide what kind of company you want to build, if you decide that you need a company in China to sell online. This choice depends on several factors, so let’s see the different possibilities you have.
Why Start a Business in China?
There are different reasons to start a business in China. The main ones are:
- You want to be close to your clients
- Your sector or business requires a presence in the country you are targeting
- Legal issues
- This market offers you some great advantages
Even for these reasons, it is not easy to do business in China. Company registration has been simplified since this article was first written in 2017, as our guide to getting a business license in China explains, but the process still takes preparation.
What Types of Companies Can Foreign Investors Set Up in China?
- Representative office: it is one of the easiest structures to open, but your company will be very limited in what it can do. It cannot manufacture products, import or export products, or receive payment from Chinese clients. This option suits companies that do not carry out direct business in China.
- Joint venture: fewer restrictions than a representative office. You will need a Chinese partner who controls and manages the company with you, which brings more risk because you lose some control of your company.
- WFOE (wholly foreign-owned enterprise): it can be 100% owned by foreign investors while being a Chinese legal entity. The setup process is longer than for a representative office, although company registration has become simpler over the years. There are different kinds of WFOE:
- Consulting WFOE: offers services only
- Manufacturing WFOE: manufactures and trades products
- Trading WFOE: trades products within a specific business scope
Since January 1, 2020, the Foreign Investment Law has replaced the former laws on equity joint ventures, cooperative joint ventures and wholly foreign-owned enterprises. The organization of a foreign-invested company now follows the Company Law, the Partnership Law and other laws, and companies set up under the former laws could keep their original organization for five years. The names joint venture and WFOE are still commonly used for these structures.
How Do You Set Up a Company in China?
If you want to set up a company in China, you will usually need a consultant or a specialized firm to help you. The process can be long and complex, and the language can be a problem as well. Here are the main steps to open a company:
- Choose the business scope and structure that will fit your business
- Have all your documents in order
- Apply for registration and receive the business license
- Open a bank account
What Should You Do Next?
After seeing the main types of companies in China, the best advice is to get help to decide which structure your business needs, because it is never easy to do it on your own. It is not easy to say which solution is the best one: it depends on your needs and the type of business you want to undertake. Once your company is registered, our China website compliance consulting can take care of the next step online, from the ICP filing to the hosting of your website in China. If you have any question about this, do not hesitate to contact us.
Frequently Asked Questions
What is a WFOE in China?
A WFOE, or wholly foreign-owned enterprise, is a company registered in China and owned 100% by foreign investors. It is a Chinese legal entity, so it can run its business directly, unlike a representative office. WFOEs are often described by their activity: consulting WFOEs offer services, manufacturing WFOEs make and trade products, and trading WFOEs trade products within a specific business scope.
What can a representative office do in China?
A representative office is one of the easiest structures to open, but it is very limited. It cannot manufacture products, import or export products, or receive payment from Chinese clients. It suits foreign companies that want a presence in China without carrying out direct business there.
What is the main risk of a joint venture in China?
A joint venture has fewer restrictions than a representative office, but it needs a Chinese partner who controls and manages the company with you. That shared control is the main risk: you lose part of the control of your company, so the choice of a partner you trust matters as much as the structure itself.
