100
[ESTABLISHING A BUSINESS ENTITY IN CHINA]
1) Resident Representative Office of a Foreign Enterprise (“ RO ”) Some foreign investors may choose to register an RO as their first presence in China. An RO cannot directly operate a business and is mainly set up for liaison and other non-business activities. It has no legal personality, and its liabilities are borne by its foreign parent enterprise. As such, it fits those foreign investors who have not decided to commit to a long-term establishment in China. a) Business activities ROs are not permitted to directly engage in business activities; but are only permitted to engage in: (i) market investigation, displays, and promotion activities in connection with the products or services of their foreign parent enterprises; and (ii) liaison activities in connection with products sales, services provision, domestic procurement, and domestic investment by their foreign parent enterprises. b) Representatives The foreign parent enterprise of an RO shall appoint one chief representative, and one to three representatives to the RO. c) Capital There is no requirement to make any capital contribution when establishing an RO. The working capital that an RO needs for carrying out the permitted activities is provided by its foreign parent enterprise.
2) Company A foreign-invested company may be established in the form of either a limited liability company or a company limited by shares. A company has a legal personality and possesses independent corporate assets. As one of the most popular structure choices, the company attracts investors mainly because it provides investors with limited liability protection and the investors are only liable for the amount of their committed investment to the company. a) Limited Liability Company (“ LLC ”) - Limited liability The shareholders’ liability is limited to the aggregate subscription price of their subscribed capital. - Capital ◼ The registered capital of an LLC is the total subscribed capital of all the
shareholders, which shall be registered with the AMR upon formation. Any subsequent increase or reduction of the registered capital subscribed to by a shareholder requires a change of the LLC’s registration information with the AMR. Although in most cases, the registered capital of an LLC is subscribed to by an investor at its face value, it is possible that an investor subscribes for registered capital at a premium.
ILN Corporate Group – Establishing a Business Entity Series
Made with FlippingBook Ebook Creator