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Quick Question Friday, China Law Answers, Part III
This is the third in our weekly series, posted every Friday.
Foreign ownership in a domestic Chinese company. It’s a trap.
Because of this blog, our China lawyers get a fairly steady stream of China law questions from readers, mostly via emails but occasionally via blog comments as well. If we were to conduct research on all these questions and then comprehensively answer them, that would soon become all that we do and we would soon be out of business. And that would be a bad thing for us and for this blog. So what we usually do is provide a super fast general answer and, when it is easy to do so, a link or two to a blog post that may provide some additional guidance. We figure we might as well post some of these on here.
Every week or so we get an email or a phone call from someone trying to figure out how to avoid having to spend the time and the money to form a WFOE in China. We don’t really blame them for trying to find a workaround. One of the most common workaround question we always get is along the following lines:
I am looking to go into business with a Chinese citizen and she is suggesting that we do together own a Chinese domestic company. Does this make sense to you?
The quick answer is no, that does not make sense. It does not make sense because foreigners like you are not allowed to have an ownership interest in a Chinese domestic company. The only real method for co-ownership of a China company as between Chinese citizens/Chinese companies and foreign citizens/foriegn companies is via a Joint Venture and let me tell you, what it takes to form a China WOFE is nothing as compared to what it takes to form a China Joint Venture. Forming a China joint venture has pretty much all of the requirements of forming a WFOE, along with having to resolve and document all sorts of additional issues relating to the relationship between the China party and the foreign party.
The post Quick Question Friday, China Law Answers, Part III appeared first on China Law Blog.
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/2015/06/quick-question-friday-china-law-answers-part-iii.html
