Buying and Selling China WFOE Shell Companies

Every so often I get an email from someone who wants to know if our law firm has any clients that might be interested in buying a shell China WFOE. I always say “no.”

The people trying to sell their shell WFOE usually pitch it as being liability free and therefore ready-to-go much faster and at lower price than if someone were to have to form their own China WFOE.

The thing about off the shelf China WFOEs is exactly that: they are off the shelf and not customized. And that is where the first set of problems arise. Let’s take as an example a WFOE in which someone recently tried to interest. That company was in the IT outsourcing business in a second tier city. So right there, its only real potential buyer is someone interested in doing IT outsourcing in that second tier city. Because if the buyer of that WFOE is interested in doing anything other than IT outsourcing, it will need to petition the government to expand or change its business scope. Similarly, if the buyer is interested in doing IT outsourcing in some other city, it will need to petition the government to move its WFOE or it will need to set up a branch in that other city and thereby have to maintain two offices. When you throw in the fact that anyone buying a WFOE will need to conduct due diligence on it to make sure it truly does have no liabilities of any kind (including, tax, employee, environmental, tort, etc.) and you can quickly see why forming a WFOE will be safer and probably equally fast and cheap. The biggest benefit in buying a shell WFOE would be speed, but it is going to be the rare instance where saving a few months will warrant the extra risk.

The odds of a shell WFOE’s city and scope lining up perfectly with that of a potential WFOE buyer are slim. Those odds would no doubt be better if there were a website that matches up WFOE sellers with potential WFOE buyers, but I know of no such site.

Is there any market for China WFOE shell companies?

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