If you are considering to set up a Wholly Foreign Owned Entity (WFOE) in China, the China Law Blog has just published a very good post that takes you through the basic steps that you will need to follow to form this type of entity.
I think this is a good post to recommend because a lot of foreign entrepreneurs choose to form a WFOE to stablish their presence in China. WFOEs allow you to keep full control and ownership of the operation and it also makes IP protection easier -hence it has become the preferred vehicle to enter this market.
Bellow you can read a recap of the China Law Blog recommendations and steps (you can read the complete post here, and if you still don´t subscribe to their blog I highly recommend you to do it):
1. Make sure your business is legal for foreigners.
2. Provide the required documentation: proof of the company being a duly formed and validly existing corporation or Limited Liability company in its home country.
3. Investor Documents Needed:
a) articles of incorporation or equivalent
b) business license, both national and local
c) certificate of status or a notarized copy of the Corporate Register for the investor or similar document
d) bank letter attesting to the account status of the investor company
e) description of the investor’s business activities (in Chinese)
4. Consider forming a Special Purpose Company to own the WFOE. It is common to form a Hong Kong company for this purpose and there are often tax benefits.
5. Secure Chinese Government approval.(and they remind you that in China, approval of the project by the relevant government authority is an integral part of the company registration process and you risk not being able to register if the project is not approved) .
6. Documents to be submitted in order to achieve Chinese Government approval:
a) articles of association (which will determine issues like stablishing directors, local management, local address, special rules on scope of authority of local managers, company address, and registered capital)…
Note from Foreign Entrepreneurs in China: you need to devote special care to this part. The articles of association are one of the most important set of documents you will be preparing. The articles of association include articles like “business scope” which needs to truly reflect any type fo activity you are planning, as you will not be able to operate out of its limits.
b) feasibility study (in Chinese).
c) a lease. ( an agreement for all required leases must be provided)
7. Other documents that you will be requested: proposed personnel salary and benefit budget. And any other documentation required for the specific business proposed.
8. Approval process: 2-5 months for governmental approval, depending on the location of the project and its size and scope.
And just to finalize this post I will remind you what most entrepreneurs tell me in their interviews: “Get good advisors”. The people who help you navigate the set up of your company in China can make a huge difference.
More recommended reading: Take a look to our post entitled “Setting Up a Representative Office in China: 10 Steps and some Practical Tips”. Although it was produced with R.O.s in mind, it still provides very good tips that apply to other type of entities.