China WFOE Registration Guide (1) – Main Features of a Wholly Foreign Owned Enterprise

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General Information

Language
The official language is Chinese, with English being used normally in the major cities, including Beijing, Shanghai, Shenzhen, Guangzhou and some other second tier cities.

Currency
The official currency is Renminbi (RMB) which is officially pegged to a basket of major currencies. Renminbi to US Dollar is trading at around USD1=RMB6.5.

Exchange Control
Yes.

Type of Laws
Continental Law.

Major Features of Wholly Foreign Owned Enterprises (WFOEs)
Type of Company Commonly used by foreign investors

Limited Liability Company (LLC), a Company type generally referred to as a Wholly Foreign Owned Enterprise (WFOE);
The Wholly Foreign Owned Enterprise (WFOE, also known as Wholly Owned Foreign Enterprises, WOFEs) is a Limited liability company wholly owned by the foreign investor(s). In China, WFOEs were originally conceived for encouraged manufacturing activities that were either export orientated or introduced advanced technology. However, with China’s entry into the WTO, these conditions were gradually abolished and the WFOE is increasingly being used for service providers such as a variety of consulting and management services, software development and trading as well.
Governing Laws

Law on Foreign-capital Enterprises of the People’s Republic of China, Law of the People’s Republic of China on Wholly Foreign-Owned Enterprises; Company Law of the People’s Republic of China (revised 2005).

Restrictions on Trading
Wholly Foreign Owned Enterprises could only engage in those business activities (Business Scope section) stated in the Articles of Association.

One of the most important issues covered in the project documentation is the business scope of the WOFE. Business scope is narrowly defined for all businesses in China and the WOFE can only conduct business within its approved business scope, which ultimately appears on the business license. Any amendments to the business scope require further application and approval. Inevitably, there is a negotiation with the approval authorities to approve as broad a business scope as is permitted.

General business scope usually includes, investment consulting, international economic consulting, trade information consulting, marketing and promotion consulting, corporate management consulting, technology consulting, manufacturing, etc.

Power of Company
A China Company (Wholly Foreign Owned Enterprises, WFOEs) has all the powers of a natural person.

Language of Legislation and Corporate Documents
Legislation in Chinese; Corporate documents could only be prepared in Chinese.

Name Approval Required
Pre-approval is required for use of a name. It is possible to reserve a name of a proposed WFOE by as long as six months. It is essential to check that there is no similar or identical name on the register, which would prevent the company being incorporated.

Shelf Company Available
Not.

Suffixes to Denote Limited Liability
Limited.

Disclosure of Beneficial Ownership to Authorities
Yes.

Authorised and Paid up Share Capital
For the WFOE, the minimum amount of registered capital required starting from RMB30,000 (about USD4,000), Under the Company Laws, the paid-up capital is equal to registered capital, Investors or shareholders must pay for the shares subscribed and deposit the money into a specified bank account. The amount of share capital so deposited should be audited by a firm of certified public accountants.

Shareholders
A minimum of one shareholder is required whose details are filed on the the local Administration for Industry and Commerce. Corporate shareholders are permitted. The shareholders can be of any nationality except Chinese and be resident anywhere except China and meetings can take place anywhere.

Director/Board of Directors
A wholly Foreign Owned Enterprise requires a minimum of one director and full details of these must be filed with the Administration for Industry and Commerce. The director(s) is(are) appointed by the shareholder(s) of the WFOE. If there is only one director appointed, then the sole director is the executive director or managing director of the WFOE. The director can be of any nationality and be resident anywhere. Corporate director is not allowed. There is no requirement for board meetings to be held within China and directors may be resident anywhere in the world except China.

If the investor(s) decide(s) to set up a board of directors for the new WFOE, then the minimum number of directors are 3 and the maximum are 13. A person who holds the office of director could not at the same time act as Supervisor.

Supervisor/Board of Supervisors
A WFOE is required by the China Company Law to appoint at least one Supervisor. The supervisor can be of any nationality and be resident anywhere. A person holding the office of Supervisor could not at the same time act as director or legal representative of the WFOE.

Company Secretary
Not required.

Registered Office/Business Address
A company must maintain a business address in China where the correspondence from Chinese Government can be served and business is carried out. The office of the WFOE must be located in a commercial business. Virtual office will generally not work as a tenancy agreement of that office premise is required to be submitted to the business registration authority.

Annual Reporting
China companies are required to prepare audited accounts under the company laws. Also, a copy of the audited financial statements is to be furnished with tax authority for tax report purpose. The audited financial statements are not available to the public or to the foreign authorities except those of a listed company. We can provide complete supporting services after incorporation, such as book-keeping and auditing and tax filing.

Terms and Termination
In China, terms of 15 to 30 years are typical for a manufacturing WFOE (although some may have a longer term). It is also possible to obtain extensions of the WFOE’s duration. For projects in which the amount of investment is large, or the construction period is long and the return on investment low, projects producing sophisticated products using advanced or key technology provided by the foreign partner, or for projects producing internationally competitive products, the term of WFOE may be extended to 50 years. With special approval from the State Council, the term may be even longer than 50 years.

The WFOE may be terminated under certain conditions. For example, the inability of the WFOE to operate due to heavy losses, or in the occurrence of an event of force majeure, etc.

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