Forming a China Company: Seven Basic Issues

There will always be more to being legal to operate in China than simply forming a company there. And there will always be more needed to be truly operational in China than simply being legal. So when forming a China entity for our clients, we nearly always work with them on the following — before the China company formation process starts, during it, or immediately after:

1. We advise on whether it makes sense for our client to form a Hong Kong or Singapore or British Virgin Island company to own their China entity or to own their interest in their China Joint Venture. Forming a Hong Kong/Singapore/BVI company  depends on the specific situation. For more on whether it makes sense to use a third country parent company, check out How To Form A China WFOE: Hong Kong Parent Company Is Optional.

2. We work to ensure that our client’s lease is suitable for the forming of a China company. If the lease is not suitable, no China company can be formed. For more on the interrelationship between China leases and China company formations, check out Commercial Lease Reviews for China WFOE Formations.

3. We seek to ensure that our client’s business location makes sense. With an office, this is usually a non-issue, but with something like a retail establishment, it can be a big issue. You typically do not want your official business location to be the same as your initial retail location because if you end up deciding to close down your initial retail location, you will then have to deal with the added hassle of having to deal with securing approvals from the bureaucracy to change your business location. There are also all sorts of issues that can arise from having a location in one place and your employees in another. For more on choosing your business location, check out Where To Locate Your Business In China Or Asia.

4. We prepare Chinese-language employment documents. This includes mandatory documents such as employment contracts and company Rules and Regulations, as well as optional documents such as confidentiality agreements, non-compete agreements, and educational reimbursement agreements.

5. We ensure that our client has maximized its IP protection in China. We do this both by figuring out what can and should be registered in China by way of trademarks, copyrights and patents in China and by drafting appropriate contracts and provisions with our client’s vendors, suppliers, counter-parties, and employees to protect their IP as well. For more on China IP protection, check out Five Tips for Protecting Your IP from China.

6. We often assist our clients in opening their China bank account and in retaining a China accountant and a China bookkeeper. We typically work with the accountant on capital requirements and transfer pricing.

7. We seek to ensure that our client’s China compliance is in order. This includes working with them on a compliance program that fits their needs and their risks and that protects against anti-corruption problems. Compliance is of particular concern to SMEs, who typically name the parent company’s CEO as the legal representative of their China subsidiary company, and thereby expose the CEO to criminal liability in China for employees’ misdeeds. For more on China compliance, check out China Foreign Company Compliance in These Tough Times.

What are you seeing with China company formations these days?