A Representative Office (RO) is the most basic form of foreign investment in China. Representative Offices are intended to be exclusively a liaison with the Chinese market. Therefore, Representative Offices cannot engage in direct business activities. They are generally established to conduct preliminary market research, carry out quality control over Chinese suppliers and activities of the kind.
Wholly Foreign Owned Enterprise (WFOE)
A Wholly Foreign Owned Enterprise (WFOE) is a limited liability company established in Chinese territory that is wholly owned and controlled by one or more foreign investors. They have the same status than other Chinese legal persons. WFOEs are the most popular option among foreign investors. They can be utilized as vehicles to carry out a wide number of business activities, including manufacturing, trading and services. They are authorized to engage both in domestic and international trade. Lawful profits obtained by WFOEs may be remitted abroad.
Joint ventures are an extremely useful tool to complement capabilities of Chinese and foreign enterprises. After registration, Joint Ventures are considered Chinese legal entities. Previous experience indicates that the Chinese side generally contributes with its market knowledge, existing distribution networks and / or manufacturing capabilities. Meanwhile, the foreign partner frequently contributes with technology, know-how and experience. There are two types of Joint Ventures in China: a) Equity Joint Ventures (EJV) and b) Cooperative Joint Ventures (CJV).
Equity Joint Ventures
An Equity Joint Venture (EJV) is an independent Chinese legal person with limited liability. The parties hold equity interests and their losses and gains are proportional to the values of their contribution. Joint Ventures’ operation is usually limited to a fixed period. However unlimited period of operations could be authorized based on special circumstances.
Cooperative Joint Ventures
Cooperative Joint Ventures (CJV) can adopt the form of an independent legal person with limited liability or a merely contractual joint venture (non-incorporated entity). In case of choosing the second option, partners will personally bear liabilities, as no separate legal entity is created. CJV allow the parties to contribute with a broader spectrum of assets. Profits could be distributed according to what the parties agree and do not necessarily need to correlate with their respective investment.
Foreign Invested Companies Limited by Shares (FICLS)
Foreign Invested Companies Limited by Shares (FICLS) allow foreign investors to divide the capital into shares. This corporate structure is useful to those foreign investor that are seeking to list shares on China’s Stock Exchanges (Shanghai Stock Exchange and Shenzhen Stock Exchange).
Foreign Invested Partnership Enterprise (FIPE)
Two or more foreign enterprises or individuals, and foreign enterprises or individuals and Chinese natural person, legal person or other organizations in China are allowed to establish partnerships. China is set to encourage foreign enterprises or individuals with advanced technologies and management experience to establish partnerships in the country to boost the development of the modern service industry as well as other industries.
Branches of Foreign Enterprises
Foreign companies belonging to certain industries (e.g. commercial banking, oil) may establish branches in China.