Why and How to Establish a Joint Venture in China

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A Joint Venture (JV) is a form of foreign invested enterprise (FIE) that is created through a partnership between foreign and Chinese investors, who together share the profits, losses and management of the JV. It is strongly recommended that prior to choosing this form of investment vehicle you consult with the foreign partner of an existing JV in order to better understand the advantages and disadvantages of the JV structure.

Joint-Venture-in-China

Why Establish a Joint Venture in China

As a foreign investor, there are two major reasons to create a JV. The first is when entering a certain industry requires a local partner according to the restrictions outlined in the PRC Foreign Investment Industrial Guidance Catalogue. And the second is when a local partner is able to offer tangible benefits such as well established distribution channels, well established government relationships and significant knowledge of the local market.

How to Establish a Joint Venture in China

The process to establish a JV will generally take between 4 to 6 months, and you must go through these steps: Pre-Licensing-->Licensing-->Supervision-->Legal Liability--->Office Lease.

Pre-Licensing
 

  • A letter of intent or memorandum of understanding must be written and signed by all partners
  • Submit JV name for approval by the local Administration for Industry and Commerce (AIC)
  • A JV contract and articles of association must be written and signed by all partners
  • Pre-approval from the National Development and Reform Commission (“NDRC”) may be required: where the JV will be acquiring land or other fixed assets; or where the capital investment in the JV will be significant
  • Certain other government ministries may need to be consulted and to provide approval where the JV is to do business in a relatively regulated industry or where the collateral impact of the JV’s proposed business activities require review
  • Obtain a certificate of approval for the establishment of the JV from the Municipal Commission of Commerce (MOC). 


Licensing
Once the approval certificate has been received, investors must apply and register for a business license with the AIC.  AIC requires most of the same documents as MOC, plus its own standard filing forms. And once a business license is issued, certain post-registration formalities must be completed.

Supervision
JVs are also required to appoint at least one individual (of any nationality and residency) as the supervisor of the JV.  The supervisor’s primary role is to monitor the affairs of the JV and the directors of the JV, and to report any irregularities to the board of directors of the JV and to the investor(s) of the JV. In addition to filling annual taxes, JVs must submit an annual audit report to the AIC.

Legal Liability
A JV is a limited liability company, where the liability of the JV’s investor(s) is generally limited to the assets of the JV.

Office Lease
Before beginning the application process investors must lease office space for their future business. It is recommended that a clause be added to the lease voiding the contract without penalty should the JV application be rejected. Office relocation requires a tax clearance declaration report, essentially an audit of the company.

All applications must be submitted in Chinese and, in addition, may be written in a foreign language. Documents in both languages shall have equal validity.

For more specific information or questions related to your foreign invested enterprise or if you need Verify a Chinese Company, please contact us at ChinaCoCheck.com.

 



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