The principal forms of business entities available to foreign investors in Shanghai are:-
(1) Foreign Investment Enterprises
(a) Equity Joint Venture (EJV)
(b) Cooperative Joint Venture (CJV)
(c) Wholly Owned Foreign Enterprise (WOFE)
(2) Foreign Enterprises
(a) Representative office (RO)
(b) Branches of Foreign Enterprise
(c) Enterprises other than those listed above that have establishments or places of business in China and engage in production or business operations, e.g. factory, places for exploitation of natural resources, contracted project sites.
Laws and Regulations Relating to Formation of Business Entities
When choosing among different forms of business entities, it should be noted that not all types of entities are available for all kinds of industries. The formation, organization, management of most of these entities are governed by their respective laws and regulations, which are special laws relating to the particular form of business entities in question. In 1994, the first company law of China, which is a “general law”, was enacted. Briefly speaking, special law should be used and general law should only be relied upon in circumstances when there is no provision in special law.
The laws governing the establishment and management of business entities in Shanghai are:
Company Law of PRC
Law of the PRC on Chinese Foreign Equity Joint Ventures
Law of the PRC on Chinese Foreign Cooperative Joint Ventures
Law of the PRC on Enterprises Operating Exclusively with Foreign Capital
EJV, certain CJV and WOFE are limited liability companies. Foreign investors cannot set up solely owned Joint Stock Company but may set up Joint Stock Company with Chinese partners. Joint Stock Company can be established through promotion or share offering. Currently, PRC government encourages the setting up of JSC only in high-technology production industries. The minimum capital requirement is RMB30 million and the foreign investor should not own less than 25% of the registered capital.
General Procedures for Setting up a Business Entity in Shanghai
Application procedures for different types of Business Entities are different. Please refer to our respective Fact Sheets. In general, it is a two-step procedure Step one: applicant should obtain approval from respective authorities. Step two: registration made with the Administration for Industry and Commerce.
Authorities for approval are distributed among various State Council Departments and are delegated to their local offices. Please refer to our Fact Sheets.
Criteria for Granting Approval
Please note that the Shanghai Government works on an “approval system” instead of a “registration system”, that is, the application may be rejected without any reason given.
Nevertheless, Shanghai has been reckoned as having the most liberal policies in approving establishment of business in the country. However, the following criteria have been considered beneficial to the City and therefore approval is more likely to be secured:
(1) The enterprise will use advanced technology and equipment
(2) The enterprise will use advanced management technique and has proven management experience, as reflected by the status of its parent company.
(3) The enterprise will export all or most of its produced products.
Moreover, it is important that the necessary requirements be fulfilled, and documents required by the government be fully and accurately submitted. Some of the requirements are:
(1) The parent company/investor should have at least one to three years of operating results.
(2) A business address (for commercial operations) located in a building, which is approved by the government to house foreign enterprises, is required. For manufacturing concerns, the factory should be located at a site approved by the government.
(3) For non-Chinese documents, certified translation by approved translator are required.
(4) Notarization of statutory documents of the parent company may be required.
China adopts a registered capital system. All registered capital has to be paid up in cash, physical assets or intangible assets. If capital is not in the form of cash, valuation by a local “valuation professional” is needed according to regulations relating to the particular industry.
Strict capital injection requirement should be fulfilled. “Capital” includes not only registered capital but also promissory loans from the parent company or financial institutions. Different regulations for different industries govern the minimum capital requirements and schedule of injection. Local auditors should be engaged to issue audit report on capital injection. If capital is not injected according to the schedule, business license and certificate granted may be withdrawn.
The foreign enterprises operating in Shanghai has to submit its proposed name to respective government department for approval.
A separate business address, located in commercial buildings or sites approved by the government, is required as the office / factory address.
Post establishment Registration Procedures
Upon the issuance of the registration certificate, the applicant is required to complete post-establishment registration procedures, including
(1) Opening of bank accounts
(2) Registration with the Inland Revenue
(3) Application of “Enterprise Code”
(4) Preparation of statutory stationery, including company chops
(5) Registration with the State Statistics Bureau
(6) Registration with the Customs Office.
(7) Application for Employment Visa (For expatriate staff)
Depending the types of business entities, it could take somewhere between 4 weeks to 12 weeks to complete a registration.