Establish a Company in China
When a foreign investor decides to conduct business in China, there are several common forms of business presence in China:
– a Chinese company (Wholly Foreign Owned Enterprise or Sino-Foreign Joint Venture)
– a Chinese representative office of a non-Chinese company
– a Chinese branch of a non-Chinese company
This article will focus on establishing a Chinese company and maintaining in good standing under the current Foreign Investment Law and Company Law and their relevant regulations.
Upon the effectiveness of the Foreign Investment Law of the People’s Republic of China (“Foreign Investment Law”) as of 1 January 2020, all the newly established foreign-invested enterprises (hereinafter referred to as “FIE” independently) are no longer governed by the specific Law of the People’s Republic of China on Sino-Foreign Equity Joint Ventures, Law of the People’s Republic of China on Wholly Foreign-owned Enterprises or the Law of the People’s Republic of China on Sino-Foreign Cooperative Joint Ventures, which were repealed by the Foreign Investment Law. As per the Foreign Investment Law, an FIE has the same legal status as all Chinese domestic entities and is regulated and governed by the Company Law of the People’s Republic of China (“Company Law”, with its relevant rules and regulations) for its establishment, changing, deregistration, filing and supervision.
Registration and Business License
To establish a company in China, it shall make a formal application at local Administration for Market Regulation (hereinafter referred to as “AMR”), which is the national authority for registry and regulatory of companies in China. As per the common practice, several local AMR, such as AMRs in Beijing and Chengdu, may require online application for pre-review before submitting the hard copy of establishment application files to AMR.
When the hard copies are formally accepted by AMR, the business license of company will usually be issued in 7 working days (subject to the practical proceeding of the local AMR). The Business License is the certificate of incorporation and operation of a company in China, which states the information of name, unified credit code (also the tax ID of company), registered office (domicile), registered capital, business scope, name of the legal representative and type of the company. The business license just presents essential information of a company for its daily operation , and other public information of this company about shareholders, senior management members will be published online at the official publicity system—National Enterprise Credit Information Publicity System by AMR pursuant to laws and regulations.
Name of Company
A company should have its own name firstly for its establishment, and the preview of the name by local AMR will be the first step of the establishment application. The name of a new company is usually under the format of “Tradename + industry + (area) + Limited (Limited Liability Companies or Companies Limited by Shares)”. For an FIE, neither the “area” part nor the English name is required for the establishment. However, the English name may be required for registration at other authorities, especially the customs and administrations of foreign exchange.
AMR will approve the name if it satisfies certain preliminary requirements. Sometimes, the AMR will require the authorization documents for the tradename from shareholder(s) if the tradename is authorized by its shareholder(s) jointly or independently (when the tradename is similar with even the same as the existing tradename (in Chinese)). Upon AMR’s approval for the new name, the application of incorporation with the name shall be submitted within 2 months.
For the name, it shall be noted that the registration of the tradename of the company does not mean the registration of the TRADEMARK or any other intellectual property rights in respect of the company name or any part thereof. If the Company wants to have the trademark or logo as its exclusive marks, it must apply for registration at the Trademark Office.
The Company is required to have a principal location for business as registered domicile for official communication and notice (especially from authorities). The intended address shall be completed in the application forms (with required documents for the title of the address) for registration. It shall be obtaining all required documents of the intended office (purchasing or leasing) for registration. When leasing the office, it is suggested to confirm with the local AMR whether the intended address can be registered for commercial purposes as company’s domicile before proceeding with the lease.
Capital Contribution and Total Investment
The registered capital presents the capacity of liabilities of the company for operation, which means that the company shall take the legal liabilities within the scope of registered capital contribution (the registered amount shown in the business license rather than the actual contribution). For the amount of registered capital, there is no limitation required at establishment. According to the Company Law and relevant regulations, the capital is not required to be paid up within a statutory time limit, which, however, does not mean that there is no limitation for the contribution period, and it shall be duly paid up within the stipulated period stated in Articles of Association.
For the total investment, according to the Provisional Regulations of the State Administration for Industry and Commerce on the Ratio between the Registered Capital and Total Investment of Sino-foreign Joint Equity Enterprises (effective as of 1 March 1987), the amount shall conform to the ratio between the registered capital, generally, the amount of total investment shall be much higher than the registered capital to ensure the operation of the investment. And the balance between the total investment and registered capital will be the credit scope for FIE’s cross-border financing.
However, after the Notice of People’s Bank of China on Matters Concerning Macro-prudential Management on All-round Cross-border Financing issued by People’s Bank of China (also known as the No.9 Announcement, effective as of 12 July 2017), the FIE can choose the way of “all around” financing arrangement in respect to cross-border loans instead of using credit scope from the “balance between total investment and registered capital”.
Also, upon the Foreign Investment Law coming into force, the “total investment” is not required in the Articles of Association according to the Company Law, and the Approval Certificate stating the “total investment” is no longer required for the establishment at AMR. Therefore, the “total investment” is no longer an important item as registered capital for an FIE’s establishment. However, most of the application forms of AMR still require the amount of “total investment” in CNY or USD, which is acceptable to fill in the same amount as registered capital.
Shareholders and Authorized Representative
According to the Company Law, the sole shareholder (if) or the board of shareholders (shareholders’ meeting) shall be the highest authority of a company, who shall decide all major issues of a company in accordance with Company Law and its Articles of Association. For a liability limited company, the number of shareholder(s) shall not exceed 50 (it will be a one-person limited liability company when there is only one shareholder); and for a company limited by shares, the number shall be over 2 and no more than 200.
When applying for establishing a new FIE, the business certificates (for proving its incorporation and good-standing) for entity shareholder(s) or identification (passport) for individual shareholder(s) are required, which shall be notarized, legalized at its location of registry, and authenticated by the Chinese Embassy (Consulate) (also known as “double authentication”). It is important to point out that, the documents of investors from Hong Kong and Macau, are required to be notarized by local notary, and to be “authenticated” (reviewed and stamped the special seal) by China Legal Service (H.K.) LTD. or China Legal Service (MACAO) LTD., which are special agencies in charge of legalizing local documents with the approval of PRC the Ministry of Justice of PRC. For individual investors from Hong Kong and Macau, the identification can also be the original copy of their ID card or the “Exit-Entry Card” (Exit-Entry Permit for Travelling to and from Hong Kong and Macao). In addition, some local AMRs may require bank reference letter as proof of good-standing of such foreign entity shareholder(s).
In order to assist the foreign investors in obtaining official files and documents from AMR and/or other authorities, they can designate a representative (an entity, which can be the newly established FIE or individual) in China as the recipient of such documents in accordance with Chinese laws. And to facilitate the signing and effecting of documents by shareholders to exercise their rights and authorities, foreign investors are usually required to appoint authorized representative(s) to sign and effect documents related to their invested companies in China on behalf of shareholder(s). And the appointment and replacement of such authorized representative(s) (Power of Attorney) of shareholder(s) are also required to be filed at local AMR.
It is important to note that the forms of identification of investors may be different from place to place, which will make differences for the required certificates, it is suggested consulting the latest requirements with the local AMR where the new company will be set up before preparing such shareholder(s) documents, including the authorization documents mentioned above. With respect to documents in foreign languages, a Chinese translation shall be attached for submission.
Directors and Supervisors
As per the Company Law, a company is required to set up a board of directors that comprises 3 to 13 personnel with a chairman (and a vice chairman), or appoint an executive director instead of establishing a board of directors. The board of directors/executive director shall be elected or appointed by the shareholder(s), and the term of appointment of each director shall not exceed 3 years.
A company is also required to set up a board of supervisors with over 3 personnel, or one or two supervisors instead of the board. The supervisors are also appointed by shareholders with the term of 3 years. The board of supervisors or a supervisor take responsibilities for inspecting financial status, supervising the duties performances by directors and senior management personnel and taking other actions for good orders of the company. Therefore, directors and senior executives shall not take the position of supervisor concurrently.
Senior Management and Legal Representative
A company shall appoint its senior executives to conduct actions for its daily operation. According to the Company Law, the persons of senior management (“senior executives”) will include manager (vice manager) as well as financial officer. Usually, the manager will be appointed by directors, while the vice manager and financial officer will be appointed by board of directors/executive director or the manager, however, the appointing rules shall be subject to the article of association of the company.
The “legal representative” of a company, rather than a position for management, shall be seen as the “representative” who is legally on behalf of the company when conducting all business activities or communicating against any third parties according to the Chinese law. Where the legal representative engages in business activities in the name of the company, the legal consequences incurred shall be undertaken by the company. The “legal representative” shall be taken by chairman of board, executive director or manager, subject to the stipulation of articles of association.
When submitting the registration application, all personnel shall have been appointed (it does not mean that such personnel must be present in China). And such resolutions or letters of appointment for the legal representative, directors, supervisors and senior executives, as well as their identity information/documents shall be provided to AMR as required.
Articles of Association
As the constitution document reflecting the agreement of shareholder(s), each company shall have its articles of association, which binds the company and shareholders, directors, supervisors and senior management (including executives who are not required to be filed at the AMR). The articles of association stipulate fundamental principles and rules for internal organization and relationship, as well as daily operation and business of a company. The Company Law sets the most basic standards and rules for a company permitted by laws, and the articles of association are allowed to stipulate tighter rules in accordance with Company Law. And they are also allowed to set rules for the matters which are not mentioned in the Company Law. The articles of association executed and enforced by all shareholders shall be submitted to the AMR for company establishment, and any amendment or revision made to the article of association shall be filed at the AMR. In addition to the AMR, the company may be required to submit the effective articles of association to other authorities or organization, such as the bank when opening a bank account.
徐咏冬 Mory Xu
Beijing Dentons Law Office Associate
投资并购 | 外商投资 | 公司业务 |争议解决
M&A | Foreign Investment | Corporate | Dispute Resolution
According to the Implementation Regulations for the Foreign Investment Law, matters of the investments in the Chinese Mainland by investors from Hong Kong Special Administrative Region and Macau Special Administrative Region shall be handled with reference to the Foreign Investment Law and regulations for implementation. And investment by investors from Taiwan, shall be complied with the provisions of Law of the People’s Republic of China on the Protection of Investment by Taiwanese Compatriots and its Implementation Regulations, and matters not stipulated in the above related law and regulations, shall be handled with reference to the Foreign Investment Law and regulations for implementation. For the avoidance of doubt, the term “foreign investment” in this article will include the investments by investors from Hong Kong and Macau, excluding Taiwan region.
 AMR is a general administration authority managing and supervising business matters and affairs of all kinds of entities, undertaking position of markets managing, quality control, security supervision, anti-trust administration and all other related matters of keeping business and commercial environment in good orders. Each entity shall be under administration of its registered local AMR.
 It is noted that, according to the Notice on Adjusting the Presenting Information of Business Licenses issued by the State Administration for Market Regulation effective as of 25 July 2022, the business licenses which is issued after 1 September 2022, will no longer present “Term of Operation” of the company. And such item will be shown at the official publicity system.