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If A equals success, then the formula is: A = X + Y + Z. X is work. Y is play. Z is keep your mouth shut.” Albert Einstein.

“By working faithfully eight hours a day you may eventually get to be boss and work twelve hours a day.” Robert Frost

Our firm helps aspiring business owners turn ideas into viable business opportunities. We accomplish this by seeking on-going relationships with our clients, advising clients on a variety of business formation issues, and routinely helping clients throughout the course of their business. China Law Blog often takes preventive steps on our clients' behalf to ensure their interests are fully protected.

If you are interested in learning how a lawyer from our firm can help you reach your business formation goals, contact our firm to arrange a consultation. At China Law Blog, we give clients honest assessments regarding attorneys' fees. We also offer evening and Saturday hours to accommodate busy schedules.

Advising New Business Owners on Choice of Entity
Our firm advises new and aspiring business owners on the legal, financial, and contractual issues related to starting a business. We advise clients during the process of choosing an entity such as LLC, corporation, S corporation, non-profit, partnership, and LLC. Determining the appropriate entity under which a business should operate will be based on a variety of factors. We ask clients questions such as the following:

l       Who are the owners?
l       Who will be the members and the managers?
l       Who will be the directors?
l       What are the business's liability limits?
l       Where will you be doing business?
l       With whom will you be doing business?

Depending on the entity chosen, we help clients with other legal aspects of business formation including:

l       State Employer Identification Numbers
l       Shareholder agreements
l       Operating agreements
l       By-laws
l       Employment agreements
l       Employee manual
l       Severance agreements
l       Acquiring Commercial Property

If you are interested in buying commercial property for your new business, China Law Blog can help. We offer experienced representation during the process of acquiring land, offering a full range of services before, during, and after closing.

Our firm also advises clients during on-going business operations including business transactions and business succession planning. We also serve as registered agents for businesses.Contact our firm to arrange a consultation to discuss business formation.



A Memo on Fiduciary Duty and Liability of Employee under Chinese Law

Memorandum
To:     Senior Partner
From:   Senior Associate Bo Zhu
Re:     Singer’s Fiduciary Duty and Liability under Chinese Law
Date:   September 21, 2011
Facts
On March 1953, John Singer was hired by General Automotive Manufacturing Company (”Automotive”) as general manager of its business and affairs. They signed an employment contract, where Singer agreed not to engage in other business or disclose business information to third party.
Singer was experienced at machine work and bolstering business credit. His high reputation attracted large volume of orders, among which were some orders that either Singer deemed as could not be done by Automotive for lack of suitable equipment or Automotive could not do at a competitive price. Without informing Automotive of this situation, Singer forwarded the orders to other competitors and retained secret profits.
Singer finally set up a business of his own, doing the same products with Automotive, while he was still Automotive’s employee and without informing Automotive of it.
The profits of his side line business accrued to $64,088.08 so far.
Issue Presented
1. Whether Singer was liable for breach of fiduciary duty owed to Automotive.
2. What liability Singer would bear if he breached fiduciary duty.
Brief Answer
1. Under Chinese law, Singer was liable for breach of fiduciary duty because he competed with Automotive and appropriated Automotive’s business opportunities.
2. Singer must account for the profits he obtained and render the profits to Automotive.
 

How to resolve your business partnership dispute in China

When two or more people go into business together, they have effectively formed a “partnership”.  Technically, the terms “partner” or “partnership” are usually limited to an entity known as general partnership or limited partnership, but for simplification we will use them to describe shareholders in a closely held corporation, or members in a small Limited Liability Company (LLC).

The worst thing partners can do is establish a business or enter into some form of joint venture without a clear agreement what their rights and responsibilities are to each other.  Better yet, this agreement should be reduced to writing to avoid any ambiguities or misunderstandings about these responsibilities.

With or without a written partnership agreement, disputes do occur.  When they do, each partner needs effective legal representation to protect their interests.  If an informal resolution cannot be reached, litigation or alternative dispute resolution (ADR) may become necessary.  While litigation is never pretty, the consequences of not enforcing your rights may be far worse.  Say, for example, you are a minority shareholder in a closely held corporation.  Your partners (the majority shareholders) refuse to let you view the company’s financial reports.  How can you possibly know whether or not you are getting your rightful share of the company’s profits?  Or, if you do see the financials, they may show a lack of profits but also show the majority shareholder is taking out an exorbitant salary.  The cost of doing nothing may be tens or hundreds of thousands of dollars of lost profits to you over the years.

 

Official Regulations on How to Set up a Representative Office in China for a Foreign Company

I often receive consultation on how to set up a representative office in China. I usually cite the following regulation to answer these questions. Now I attach the regulation for your reference. However, if you have any questions regarding the following regulation, please contact me for information.

The Regulations on Administration of Registration of Resident Offices of Foreign Enterprises Decree of the State Council of the People’s Republic of China

No. 584

The Regulations on Administration of Registration of Resident Offices of Foreign Enterprises, which was adopted at the 132nd executive meeting of the State Council on November 10, 2010, is hereby promulgated and shall enter into effect as of March 1, 2011.

Premier Wen Ji.ab.ao

November 19, 2010

Regulations on Administration of Registration

 

of Resident Offices of Foreign Enterprises

 

China Lawyer Tips: How to Set Up Joint Venture in China

When the value of goods purchased is large enough, setting up a dedicated factory in China may be a consideration. It is the preferred option when issues of quality, design security and brand control are paramount. However, the effort required to build and manage a factory from the ground up can be intimidating, especially for those businesses which are new to China. For companies that want greater control over the production process, but prefer to avoid the headaches associated with “going it alone” in China, PassageMaker offers two forms of cooperation:

Virtual Joint Venture in China:  Existing PassageMaker floor space, staff and equipment are dedicated solely to the production of the client’s given product. In this fashion, the client can leverage the existing PassageMaker business umbrella (space, staff, management, logistics, accounting). Compensation to PassageMaker depends on the scope of the factory formation project, but can take the form of a fixed monthly retainer and/or percentage of production value.
Joint Venture in China: In cases where the production space and staffing requirements are substantial, the client and PassageMaker may form a Joint Venture at a new facility. In simple terms, under a pre-agreed compensation structure.

 

China Company Formation/Corporation Registration/Setting up company

China Law Blog provides a full range of professional services for foreign investors targeting to enter or operate in China. Our services include, among others, offshore incorporation (Hong Kong, BVI, Seychelles, Marshall Islands etc.), China company formation (WFOEs, representative offices, Joint Ventures) and investment consulting services (China investment project management, due diligence, M&A, corporate restructuring, auditing, accounting services etc.) Different Company Types in China

We have a clear focus on small and medium size businesses, including family-owned businesses and entrepreneurs, and strive to provide them the full range of services as they enter the Chinese market. No other advisory firm truly understands the needs of this market segment better than us. Furthermore, our qualified and multi-cultural staff, with years of experience in company formation, China market entry advisory, tax, accounting and audits, investment project management and more, are well prepared to guide entrepreneurs and SMEs in entering and succeeding in China.

 

Equity Joint Venture (EJY)

l The foreign investors will have a holding of at least 25% in the Chinese company.

l The registered share capital must cover a specific percentage of the total investment in the company. This percentage varies between 33% (an investment of over $ 36 million) and 70% (an investment of under $ 3 million).

 

A Joint Cooperative Venture (CJV)

l A Joint Cooperative Venture is usually set up for a specific project or partnership for a period of time that is defined in advance.

 

Wholly Foreign Owned Venture (WFO)

l There are no minimum or maximum limits regarding the amount of the foreign investment.

l In recent years over 65% of foreign investments in China have been in the form of a WFO, mainly because of the absence of a minimum investment requirement.

 

Chinese Holding Company (CHC)

l This is intended for a company that is interested in consolidating a number of investments in China to one body.

l There are legal requirements in China regarding the credit rating of a foreign investment in a CHC. The total value of the investor's assets and his investments in a company in China must be in excess of the legally defined minimum.

 

Joint Stock Company

l The minimum registered share capital is CNY 30 million. The minimum for a company traded on the Stock Exchange is CNY 50 million.

l The foreign investors' share must be at least 25% of the registered capital.

 

Branch

l At present, only foreign companies in the financial and services sector, subject to the restrictions specified in Chinese law, may set up a branch in China.

 

Representative Office (RO)

l A representative office is a type of operation with low financial expenses.

l The aim of the RO is the creation of a presence in China and promotion of contacts/supervision/management investigations in China.

l The RO may not issue accounts to the Chinese market for sales and services in China.

Advantages and disadvantages of setting up company in China

 

China company formation assists global entrepreneurs legitimately conduct business in one of the world’s fastest-growing economies. The following information will help you determine whether China company formation is the optimum corporate structure to fulfill international business objectives:

Advantages of China Company Formation 

1. China company formation is popular with foreign investors looking for a foothold in the world's third-largest economy (after the EU and the USA), based on nominal GDP data from the IMF. China is the recipient of more foreign direct investment (FDI) than other nations in Asia. Furthermore, China offers a vast labour pool that, in the major cities, increasingly comprises sophisticated graduates. 

2. A China Representative Office is an ideal way for entrepreneurs choosing China company formation to market a foreign parent company’s services in China.

3.  A foreign-owned company can obtain tax exemptions if based in a Free Trade Zone or Export Processing Zone. Furthermore, to encourage foreign investment some provinces offer preferential corporate tax rates. Although the most popular locations for foreign investors are Beijing, Guangzhou, Shanghai and Shenzhen, Healy Consultants will compare regional options and provide a professional recommendation based on our client's requirements. Other notable options include Suzhou, Qingdao, Ningbo and Dailan.

4. A Chinese company accesses double taxation treaties with 95 countries including Australia, France, Germany, India, Singapore, the UK and the US to support China company formation. There are more tax agreements in the process.

5.  100% foreign ownership is permitted for a Chinese company. For more information, visit Healy Consultants' Wholly-Owned Foreign Enterprise (WOFE) page. 

6. In its 2010 World Competitiveness Yearbook, the Switzerland-based IMD positively ranks China as the world’s 18th most competitive economy. The ranking takes into account factors including economic performance, government efficiency, business efficiency and infrastructure. Furthermore, in the World Economic Forum's Global Competitiveness Report 2009-2010, China is ranked at a positive 29th place. 

7. Following China company formation, Healy Consultants can open a corporate bank account with one of the world's leading retail banks, including HSBC, Standard Chartered and Citibank. For more information, visit our China corporate bank account page. For a wider overview of our services visit our Other services to support China incorporation page. 

Disadvantages of China Company Formation

1. All Chinese companies suffer a fixed 25% tax on global profits. However, tax deductions are available for foreign-owned companies (see point 3 above). 

2.  Although 100% foreign ownership is permitted, the company activities allowed and minimum start up capital required varies depending on geographical region. The activities of a foreign-owned entity are restricted to those on its business license, issued by the provincial government. Because of this, it is critical for a foreign investor to carefully prepare incorporation documents. Healy Consultants handles all pre-incorporation documentation for clients to ensure the scope of business license matches the planned activities of the company. Examples of the restrictions placed on Chinese companies include the inability of a Representative Office to make sales and invoice clients in China.

3.  Both a foreign-owned entity and a Representative Office must be located in a prime office premises pre-approved by local government and municipal authorities. Consequently, office premises eligible for foreign-invested companies are expensive to rent. 

4.  China company formation takes up to 6 months due to inefficient bureaucracy and complex licensing procedures involving local and provincial authorities. To highlight this, China ranks poorly as the world’s 79th easiest place to do business in the 2011 Doing Business Survey by the World Bank, which takes into account China company set up procedures, time, cost and minimum capital required to start a business. China also negatively ranks as the world's 140th freest economy in the Heritage Organisation’s 2010 Index of Economic Freedom, a measure of freedom enjoyed in business, trade, monetary, financial, investment and labour markets.

5. Forbes Tax Misery Index 2009 rated China as having the 2nd highest tax misery in the world. The index takes into account corporate income, employer social security, personal income, employee social security, wealth tax and VAT/sales. Forbes suggests the index can be used as a proxy to evaluate whether a country抯 policy attracts or repels capital and talent. 

6. China's legal system has a poor international reputation, for example the enforcement of intellectual property rights. As evidence of this, China ranks as the world's 78th-least corrupt country in the 2010 Corruption Perceptions Index by Transparency International, a global measure of corruption amongst public officials and politicians. Moreover, China is poorly ranked as the world's 27th most competitive economy in the World Economic Forum's Global Competitiveness Report 2010-2011. 

7. After China company formation, all entities are required to submit financial statements and tax returns to federal and provincial authorities. Healy Consultants will assist our clients efficiently and effectively to complete this annual statutory obligation. 

Why Choose US to Accomplish Your China Company Formation and Business Registration:

  • Introduction to trusted Business Registration agent and guidance on document preparation
  • A prestigious city office location
  • Office facilities to base your new business form
  • A local business telephone number at your chosen city location
  • Dedicated receptionist to answer your calls in your company name and transfer to you
  • Access to corporate meeting rooms and boardrooms for as little as 10 mins or the whole day
  • Professional reception area where your guests will be warmly welcomed prior to meetings
  • Flexible lease terms
  • Experienced multi-lingual personal assistants available to support you when you need them
  • Some complimentary access to the executive business lounge in any local or international location
  • Complimentary use of a day suite office in any other city for up to 3 days per month
  • 24 hour per day voicemail with delivery to your email and direct diversions such as press 1 for mobile, press 2 for home or perhaps 3 for a colleague
 
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I am a licensed China lawyer. Most clients are foreign nationals and companies. China Lawyer Blog have associates in Beijing, Shanghai, Tianjin, Guangzhou, Suzhou, Nanjing, Qingdao, Fuzhou, Hainan, Hefei, Wuhan, Xian, Changsha, Xiamen and Hangzhou. Learn More

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This China Lawyer Blog is aiming at providing better knowledge and understanding of Chinese law for foreigners. Should you have any legal issue in China, do not hesitate to contact China Lawyer Blog for consultation. Preliminary consultation is free. Further legal service, however, will be charged in due rate and in due course.

You are welcomed to ask for a quotation pursuant to your specific circumstance.

About author

China Lawyer BLog AuthorPeter Zhu, an experienced China attorney licensed to practice law for more than ten years, the author of this China Lawyer blog, welcomes any enquiry or consultation related to Chinese law.