This post focuses on forming a Wholly Formed Owned Entity(WFOE) in China because this is by far the most common entity formed for foreign companies doing business in China. I would estimate that of the last 200 companies my law firm has formed for American companies in China, 180 have been WFOEs, 18 have been joint ventures, and two have been representative offices.
The steps for forming a WFOE in China typically consist of the following:
1. Determine if the proposed WFOE will conduct a business approved by the Chinese government for foreign investment. China remains closed to foreign companies engaging in certain types of business, and regularly issues a catalog detailing which industries are open to foreign investors, and under what constraints. For some industries, foreign investment is only allowed via joint venture.
2. Determine if the foreign investor is an approved investor. In theory, any legally formed foreign business entity is authorized to invest in a WFOE in China. The investor must provide documentation from its home country proving it is a duly formed and validly existing corporation, along with documentary evidence identifying the person from the investor authorized to execute documents on behalf of the investor. The investor also must provide documentation demonstrating its capital adequacy in its country of incorporation.
To meet these requirements, the following documents are normally needed from the investing business entity:
1. A copy of a Certificate of Good Standing (or equivalent document) that has been certified by the issuing Secretary of State (or equivalent), authenticated by the Department of State, and then authenticated by the Chinese Embassy.
2. A copy of a Business License (or equivalent document identifying the investor’s directors and officers) that has been certified by the issuing Secretary of State (or equivalent), authenticated by the Department of State, and then authenticated by the Chinese Embassy.
3. An original bank letter attesting to the investor’s sound banking relationship and account status.
4. A copy of the passport of the investor’s signatory.
5. A description of the investor’s business activities, the most recent annual audit, and supporting materials such as documentary proof of the investor’s involvement in the selected industry for at least three years.
Depending on the Chinese city of incorporation, some or all of the above needs to be translated into Chinese or summarized in Chinese.
The ecstasy comes when the company is finally approved, which, believe it or not, happens pretty much every time so long as the American company is well-funded and does all of the above appropriately.
(WFOE) in China because this is by far the most common entity formed for foreign companies doing business in China. I would estimate that of the last 200 companies my law firm has formed for American companies in China, 180 have been WFOEs, 18 have been joint ventures, and two have been representative offices.
The steps for forming a WFOE in China typically consist of the following:
1. Determine if the proposed WFOE will conduct a business approved by the Chinese government for foreign investment. China remains closed to foreign companies engaging in certain types of business, and regularly issues a catalog detailing which industries are open to foreign investors, and under what constraints. For some industries, foreign investment is only allowed via joint venture.
2. Determine if the foreign investor is an approved investor. In theory, any legally formed foreign business entity is authorized to invest in a WFOE in China. The investor must provide documentation from its home country proving it is a duly formed and validly existing corporation, along with documentary evidence identifying the person from the investor authorized to execute documents on behalf of the investor. The investor also must provide documentation demonstrating its capital adequacy in its country of incorporation.
To meet these requirements, the following documents are normally needed from the investing business entity:
1. A copy of a Certificate of Good Standing (or equivalent document) that has been certified by the issuing Secretary of State (or equivalent), authenticated by the Department of State, and then authenticated by the Chinese Embassy.
2. A copy of a Business License (or equivalent document identifying the investor’s directors and officers) that has been certified by the issuing Secretary of State (or equivalent), authenticated by the Department of State, and then authenticated by the Chinese Embassy.
3. An original bank letter attesting to the investor’s sound banking relationship and account status.
4. A copy of the passport of the investor’s signatory.
5. A description of the investor’s business activities, the most recent annual audit, and supporting materials such as documentary proof of the investor’s involvement in the selected industry for at least three years.
Depending on the Chinese city of incorporation, some or all of the above needs to be translated into Chinese or summarized in Chinese.
The ecstasy comes when the company is finally approved, which, believe it or not, happens pretty much every time so long as the American company is well-funded and does all of the above appropriately.
