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Starting A China Company: Seven Basic Issues
Though China’s economy is slowing, our work in helping foreign companies start a business in China is soaring. Though this might sound counterintuitive, it actually makes complete sense. It makes complete sense because whenever China’s economy slows, China’s government steps up its crackdown on businesses operating in China without an entity and, in turn, foreign businesses to realize that it is time they got legal.
Starting a business in China these days usually means forming a WFOE. Our China lawyers also do a large number of joint ventures, but we hardly ever help in forming Representative Offices any more. Rep Offices almost never make sense and when they do, they are usually so simple that we refer the business to an entity formation company to do the work.
There will always be more to being legal to operate in China than simply forming an entity and there will always be more needed to be truly operational in China than simply being legal.
When forming a China entity for our clients, we typically also work with them on the following before the China company formation process starts, during it, or immediately thereafter:
- We advise on whether it makes sense for our client to form a Hong Kong company to own the China WFOE or to own the interest in the China Joint Venture. Forming a Hong Kong company to own your China entity makes sense more often than not, but it certainly depends on the specific situation. For more on whether it makes sense to use a Hong Kong parent company, check out How To Form A China WFOE: Hong Kong Parent Company Is Optional.
- We work to ensure that our client’s lease is suitable for a China WFOE or Joint Venture. If the lease is not suitable, no China company can be formed. For more on WFOE leases, check out China WFOE Lease Reviews
- We seek to ensure that our client’s business location makes sense. With an office, this is usually a non-issue, but with something like a retail establishment, it can be a big issue. You typically do not want your official business location to be the same as your initial retail location because if you end up deciding to close down your initial retail location, you will then have to deal with the added hassle of having to deal with securing approvals from the bureaucracy to change your business location. There are also all sorts of issues that can arise from having a location in one place and your employees in another. For more on choosing your business location, check out Where To Locate Your Business In China Or Asia.
- We prepare Chinese-language employment documents. This includes mandatory documents such as labor contracts and company rules and regulations, as well as optional documents such as confidentiality agreements, non-compete agreements, and educational reimbursement agreements. For more on China employment contracts, check out China Employment Contracts: Do Not Try This At Home
- We ensure that our client has maximized its IP protection in China. We do this both by figuring out what can and should be registered in China by way of trademarks, copyrights and patents in China and by drafting appropriate contracts and provisions with our client’s vendors, suppliers, counter-parties, and employees to protect their IP as well. For more on China IP protection, check out this post and the four that preceded it. How To Protect Your IP From China. Part 5.
- We oftentimes assist our clients in opening their China bank account and in retaining a China accountant and a China bookkeeper. We typically work with the accountant on capital requirements and on transfer pricing.
- We seek to ensure that our client’s compliance house is in order. This includes our working with them on a compliance program that fits their needs and their risks and that, in particular, protects against anti-corruption problems. Compliance is of particular concern to SMEs, who typically name the parent company’s CEO as the WFOE’s legal representative, and thereby expose the CEO to criminal liability in China for employees’ misdeeds. For more on China compliance, check out this post and the three that preceded it. China Compliance: Don’t Rely On Your China Staff, Part IV.
Anything else that anyone thinks should be added to the above?
We will be discussing the practical aspects of Chinese law and how it impacts business there. We will be telling you what works and what does not and what you as a businessperson can do to use the law to your advantage. Our aim is to assist businesses already in China or planning to go into China, not to break new ground in legal theory or policy.
Source: http://www.chinalawblog.com/2014/12/starting-a-china-company-seven-basic-issues.html
