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[ESTABLISHING A BUSINESS ENTITY IN CHINA]
partner carries out the affairs of the limited partnership or externally represent the limited partnership, it may lose the limited liability protection and be exposed to unlimited liability together with the general partner.
whereby the business activities that a foreign investor intends to engage in China are divided into three categories: the “prohibited categories,” the “restricted categories,” and the “permitted categories.” The negative list lists all “prohibited categories” and “restricted categories,” and is updated by the relevant authorities from time to time. All other businesses which are not listed in the negative list are “permitted.” A foreign investor will not be allowed to engage in a business that is in the prohibited categories; but may be allowed to engage in a business that is in the restricted categories, provided that it meets the restrictive requirements set forth in the negative list (for example, the foreign investor can only hold minority percentage of equity in the business entity). The assessment of whether a proposed business is prohibited, restricted, or permitted; and if restricted, what requirements apply, can be complicated. It is highly recommended that the foreign investor consult legal counsel in advance in this regard. The introduction below focuses on the establishment of an FIE that does not fall within the negative list. Also, the formation of a new FIE by a foreign investor and the investment in an existing FIE by a foreign investor require similar procedures. The below discussion does not specifically
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Formation 1) Formation of an RO
When establishing an RO, the applicant shall apply to the relevant AMR where the RO will be domiciled, and submit application documents such as a certificate certifying the legal operation of the foreign parent enterprise for at least two years, a bank reference letter, the constitutional documents of the foreign parent enterprise, the identity documents of the chief representative and the representative(s), a certificate of right to use premises, etc. After the application is approved, a certificate of registration will be issued to the RO evidencing its formal establishment. 2) Formation of a Company or a Partnership The formation of a foreign-invested company or partnership (each a foreign- invested entity, “ FIE ”) in China in general requires more complicated procedures and longer time frame than usually seen overseas. A majority of foreign investors choose to engage a lawyer to assist them through the process. Sometimes, foreign investors may also hire a registration agent to assist. As mentioned in the introductory paragraph, China currently administers a “national treatment plus negative list” regime on admission of foreign investment,
distinguish between the two. a) Registration with the AMR
Although the registration of an enterprise is under the unified administration of the State Administration for Market Regulation, the foreign investor shall keep in mind that the relevant AMR where the FIE will be domiciled may have its own nuanced requirements regarding the
ILN Corporate Group – Establishing a Business Entity Series
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