Sino-Foreign Equity Joint Venture in China
Sino-Foreign Equity Joint Venture
This type of foreign investment is currently still the most widely used in China, even though Wholly-Foreign Owned Enterprises are developing strongly. It is a limited liability company (This means that the investor or partner is not personally liable for the debts that the company might make in the future) and it has the status of Chinese legal person. This is a crucial difference with a RO because unlike the latter, a Sino-Foreign Equity Joint Venture (EJV) is capable of buying land, hiring Chinese employees independently, constructing buildings, etc. An EJV is a joint venture between a Chinese and a foreign company within the territory of China. Both companies invest in the joint venture with the foreign company, in general, not investing less than 25% of the total investment.
There is no minimal investment requirement for the Chinese company. The investments made can consist of cash, intellectual property rights, technology, buildings as well as materials or equipment and are commonly referred to as registered capital. The lowest possible registered capital requirement is around RMB 1.000.000, roughly US$ 100.000. The management of the EJV is in hands of a board of directors, consisting of at least three members (But possibly more if the parties agree thereon), with each party either appointing the chairman or the vice-chairman. The standard length of time for an EJV is between thirty and fifty years. In certain situations it is, however, possible to get approval for an unlimited period of operation.
Establishing a Sino-Foreign Equity Joint Venture
Before applying for the establishment of an EJV, the following documents have to be obtained:
- The necessary work and resident permits for the legal representatives
- The approval and corresponding certificate from various authorities like the Planning Bureau, the Public Security Department, the Foreign Economic and Trade Bureau, etc.
- The approval from the Industrial and Commercial Registration Office to use a certain company name
- A report of corporate capital verification issued by a Chinese public accountant
Once all the documents that are needed for the application have been obtained, the application procedure can take effect:
- Firstly, the proposal for the establishment of an EJV has to be submitted to the relevant examination and ratification authorities. Once the proposal has been approved work can start on researching the project feasibility.
- As soon as the research on the project feasibility has been completed, the reports thereon have to be submitted. Once they are approved, the parties involved can start negotiations on the signing of the legal documents, such as the contract or the articles of corporation of the company.
- As soon as the negotiations are completed successfully, the contract and the articles of corporation of the company to be established have to be submitted to the relevant departments of the MOFTEC. Once they have approved the documents, they will issue the Approval Certificate for Enterprises with Foreign Investment
- With the issued Approval Certificate, the investors will have to go to the SAIC to complete the registration procedure for the company
To simplify the establishment of a business in China for foreign companies, municipalities and provinces have established so-called foreign investment service centers, which offer foreign investors a complete service from the first consultation on how to establish a company in China to the actual procurement of the approval from the government.
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