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FIE DICTIONARY
Overview Terms for incorporation of a Foreign Owned Chinese company
Introduction of company incorporation
Agreements - How to sign in China
FIE Introduction
Before January 1, 2020 foreign investors would normally use three major types of business forms for incorporating foreign invested entities (FIEs), i.e., equity joint ventures (EJVs), cooperative joint ventures (CJVs) and wholly foreign-owned enterprises (WFOEs). These "Three Laws" were replaced by the new Foreign Investment Law and its Implementing Regulations to a single unified law.
A business entity’s governance depends now on its form rather than if it is foreign or Chinese-owned. As a bonus, for those companies that need to restructure, the Foreign investment law allows a 5-year grace period for those institutions whose corporate governance is inconsistent with the Company Law, Partnership Law, or other business organization laws that must be installed.
Specifically, the Foreign Investment Law contains a number of provisions that pledge to give foreign investors a level playing field with their domestic counterparts. For example:
- Chinese individuals allowed to directly establish companies together with foreign investors
- Foreign investors shall receive equal treatment when applying for licenses
- Increased IP protection through making government officials criminally liable
- Participating in government procurement
- Guard foreign investments from arbitrary expropriation
AGREEMENTS
Please note
- you have to sign all documents with a black pencil best with black ink, no ball pen!
- You generally will have to sign on several pages not just one
- You have to print out the documents in color as the stamp has to be visible. Also if you scan it.
BUSINESS LICENSE
The business license symbolizes that a company has been legally registered in China. It is a paper that sets out the business type the business scope, the company name, the registered capital, the legal representative, founding date and operating period. You will also observe a QR code and the stamp of the government authority printed on the physical license. The QR code is linked to the government official data base. When scanning this QR code, it will direct you to the official government website, where you can access the information of this company. The stamp of the government authority, on the other hand, is what officially allows the business to become operational.
You will only receive one original business license but it is also possible to apply for several certified copies. The certified copy will contain the same information plus these words 副本 (certified copy).
COMPANY NAME
You need to provide one English name and 5-7 Chinese names (varies) to the government. The name for a foreign owned chines company is structured like this: "Chosen Name -Business Scope-Chinese country where it is registered -Legal form.
The legal type is 有限公司 – “limited company”.
Please note -
You will be limited by choosing your name. For example you can not choose a name that includes a country like "German" or "Germany" and business activities as "Project". The government needs one English name and 5-7 Chinese names (varies).
DIRECTORS
If a company has a relatively small number of shareholders and is relatively small in scale, it can have an executive director instead of a board of directors. The functions and powers of the executive director should be stipulated in the company’s articles of association. For larger sized companies, a limited liability company in China is required to set up a board of directors comprising of three to thirteen members, which is accountable to the shareholders assembly. A board of directors should have a chairman and could have a vice-chairman, with the measures for the election of the chairman and vice-chairman of the board stipulated in the company’s articles of association.
LEGAL REPRESENTATIVE
For a the company either the Chairman, executive director, or a senior manager can be appointed legal representative. This person can be a foreigner, or a Chinese national. If for whatever reason a company legal representative needs to be changed in China, the new representative's details must be submitted to the company registry authority
The legal representative is the focal management figure of the company who will:
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Legally represent the company.
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Be responsible for compliance with all relevant laws, such as environmental, tax, and business laws.
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Enter into binding contracts on behalf of the company.
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Submit reports to regulatory bodies.
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Sign company share certificates and bonds.
The legal rep's name appears on the company's business license and is seen as responsible for that company and its operations in the eyes of the law in China.
PLEASE NOTE: The legal representative could be held personally responsible for the company's misdeeds, even if they were not aware of an issue happening. The majority of liabilities for the company fall on the shoulders of the legal representative. Those in other key positions also have liabilities for (and, of course, liabilities to) the company.
These can include:
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Liability for criminal offenses
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Liability for liquidation
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Liability to the company
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Liability for Criminal Offenses
QUALIFICATION TO ACCEPT A KEY POSITION
A person who falls under any of the following categories cannot be appointed as a supervisor, director, general manager or other senior management personnel of a company.
If a person :
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does not have civil capacity or has only limited civil capacity;
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has been convicted of any criminal offense in the nature of corruption, bribery, conversion, misappropriation or disrupting the economic order of the socialist market and 5 years have not elapsed since any penalty imposed has been completed, or any person who has ever been deprived of his political rights due to any crime and 5 years have not elapsed since the penalty imposed was completed;
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former director, factory director or manager of a company or enterprise which has been declared bankrupt and liquidated in circumstances where he was personally responsible for the bankruptcy of the company or enterprise, and three years have not elapsed since the bankruptcy and liquidation of the company or enterprise was completed;
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former legal representative of a company or enterprise which has had its business license revoked and has been ordered to close its business operations due to any violation of law in circumstances where the former legal representative was personally liable for the revocation of the business license and three years have not elapsed since the date of revocation; or
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has significant unpaid debts.
Any election or appointment of any supervisor, director, general manager or other senior manager made in violation of the provisions of this article shall be invalid. Any existing supervisor, director, general manager or other senior manager the appointment of whom would violate the provisions of this article shall be removed from his post.
REGISTERED CAPITAL
Major facts about the registered capital:
1. China has no statutory minimum registered capital amount for an entity except for a few industries, such as banking, financing, insurance, etc. In practice, the governing authorities will ensure that a company’s registered capital is sufficient to support its business operations for at least one year, including its rent, labor costs, and office expenses. The amount of “sufficient” capital varies depending on various factors, such as the region of incorporation and the industry.
2. The registered capital can affect the amount of offshore debt the company can borrow from other investors, foreign banks, or injections from affiliated companies abroad. The upper limit of the offshore debt is the gap between the total investment and the registered capital.
3. It is possible to contribute capital as cash in cash, as a lump sum, or in installments.
4. Locally obtained RMB cannot be injected as registered capital – it must be contributed from an outside account from out of China.
5. The company’s payment schedule for contributions must be specified in its Articles of Association, and once paid, the amount cannot be freely wired out again.
6. Contributions can be either equipment or intellectual property and can contribute a limited amount of total registered capital.
It should be noted though that there are strict compliance procedures for any company wanting to use in-kind capital as opposed to cash.
Scope of Business
A company's business scope serves as a description of the industry that a company is permitted to operate in, as well as all of the business activities it participates in. Companies that engage in operations that fall outside of their business scope run the risk of being fined by local authorities or even having their licenses revoked.
According to regulations, "Foreign investors are permitted to set up a 100% foreign-owned enterprise in industries that are conducive to the development of China’s economic benefits, and not prohibited or restricted by China government." The Catalogue of Guidance to Foreign Investment" categorizes fields of potential investment as :
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prohibited
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restricted
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encouraged
as stipulated in
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the Special Administrative Measures on Access to Foreign Investment (2020 edition) (National Negative List) and
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the Free Trade Zone Special Administrative Measures on Access to Foreign Investment (2020 edition) (FTZ Negative List).
Supervisor
Any shareholder or employee can be nominated to serve as a supervisor, with the exception of board members and senior managers.
Following duties fall into his competency:
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Supervise company directors and management.
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Inspect and investigate finances and company operations.
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Take action against directors and managers who break laws, company policies, or shareholder resolutions.
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Arrange and make proposals at the shareholders’ meetings.
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Attend and speak at board meetings (if applicable).
The company must pay expenses incurred by the supervisor carrying out their duties.
A China company supervisor is held to many of the same liabilities as the legal representative, in that they may be held personally responsible for any wrongdoing (whether they have knowledge of it or not) by the Chinese authorities.
The supervisor's details are not set out on the company's business license, but they are kept on file by the registry authority.
* These information are being provided as a convenience and for informational purposes only, not as legal consultation. Our company bears no responsibility for the accuracy, legality, actuality or content of this site content.