Sole Proprietorship
Feature
A type of company that has been legally set up inside China and is invested by a PRC natural person. The investor owns the company and all its properties. The owner of the company is liable for an unlimited capacity for its debts to the extent of his personal property.
Partnership
Feature
Is a profit-making organization established within the territory of China according to the Law of China on Partnership Enterprises with their partners associated under a partners- hip agreement, each making capital contributions, carrying out business operations, distributing profits, undertaking risks and bearing unlimited and joint liability for the partner- ship enterprise’s debts.
The regime of Limited Partnership consists of two kinds of partners: general partners and limited partners. General partners shall execute and manage the firm’s affairs and shall bear unlimited liabilities for the debts of the firm. Limited partners would typically be financial investors and shall be prohibited from taking an active managerial role in the firm, limited to the amount of their capital contributions to the li- mited partnership.
Remarks
The amended Partnership Law, came into effect 1st June 2007. Administrative measures for the establishment of partnership enterprises in China by Foreign Enterprises or Individuals, which came into 1st March 2010, allows the establishment of Foreign- invested Partnerships.
Representative Offices (RO)
Feature
A Representative Office (RO) can be set up by a foreign company to render preparatory services such as liaison, coordi- nation on behalf of its parent company. It is important that a representative office cannot engage in any direct profit- making activities, except for certain industries, such as law, accounting and audit services.
Remarks
Administrative regulations on registration of resident Representative offices of Foreign Enterprises which came into effect on 1st March, 2011, regulate the establishment of offices and their business activities.
Equity Joint Ven- ture (EJV)
Feature
A limited liability Chinese legal entity formed by one or more Chinese parties and one or more foreign parties under the Law of the People’s Republic of China on Chinese-Foreign Equity Joint Ventures.
Remarks
Generally, at least 25% of the joint venture’s shares should be held by foreign investor(s). The joint venture will be managed by a board of directors appointed by each side after getting agre- ement.
Investors in an equity joint venture share profits and losses strictly in accordance with their respective contributions to the registered capital of the venture.
Co-Operative Joint Venture (CJV)
Feature
A wholly foreign owned enterprise is 100% owned by foreign investors. The establishment of a wholly foreign-owned enterprise is governed by the Foreign-Founded Enterprise Law. The branches of foreign enterprises and representative offices of foreign enterprises are excluded here.
Wholly Foreign Owned Enterprise (WFOE)
Feature
Sometimes referred to as a contractual joint venture. The establishment of a co-operative joint venture is governed by the Law of the People’s Republic of China on Chinese-Foreign Co-operative Joint Ventures.
It may be formed as a legal person with limited liability, or an entity similar to a partnership. The Chinese and foreign parties shall share earnings or products, undertake risks and losses in accordance with the agreements prescribed in the contractual joint venture contract.
Remarks
The second amendment of the ‘RULES FOR THE IMPLEMENTATION OF THE LAW OF THE PEOPLE’S REPUBLICOF CHINA ON FOREIGN-CAPITAL ENTERPRISES Important Notice’ was made on 19th February 2014.
The amendment of ‘Law of the People’s Republic of China on Foreign Capital Enterprises’ was made on 3rd September 2016.