Setting Up a Company
When registering a company in China from abroad, there are two common legal entity types:
A Wholly Foreign Owned company, also known as WFOE
It is a common investment vehicle for establishing a foreign business based in Mainland China. The perhaps most distinguished and unique feature of a WFOE is that involvement of a Chinese investor is not required, unlike most other investment vehicles.
Note: Some regional bodies in China may use the term Wholly Owned Foreign Enterprise or WOFE. They are, however, exactly the same entity.
WFOEs were originally conceived for encouraged manufacturing activities that were either export orientated or introduced advanced technology. However, after China's entried into the WTO, these conditions were gradually abolished and the WFOE is increasingly being used for service providers such as a variety of consulting and management services, software development and trading as well. With that, any enterprise in China which is 100% owned by a foreign company or companies can be called as WFOE.
WFOE are limited-liability corporations organized by foreign nationals and capitalized with foreign funds. This leads to greater control over the business venture in China, and avoid a multitude of problematic issues that can potentially result from dealing with a domestic joint venture partner. Such problems often include: Profit not being maximized；Leakage of the foreign company's Intellectual Property； Sometimes joint venture partners set up in competition against the foreign firm； However, WFOE's often have difficulty building up the necessary personal relationships or "Guang Xi", which are considered of great importance in setting up a WFOE or conducting business in China.
CHINA WFOE ADVANTAGES
THE ABILITY TO UPHOLD A COMPANY'S GLOBAL STRATEGY, FREE FROM INTERFERENCE BY CHINESE PARTNERS (AS MANY OCCUR IN THE CASE OF JOINT-VENTURES)
A NEW, INDEPENDENT LEGAL PERSON
TOTAL MANAGEMENT CONTROL WITHIN THE LIMITATIONS OF THE LAWS OF THE PRC
THE ABILITY TO BOTH RECEIVE AND SUBMIT RMB TO THE INVESTOR COMPANY OVERSEAS
INCREASED PROTECTION OF TRADEMARKS, PATENTS AND OTHER INTELLECTUAL PROPERTY, IN ACCORDANCE WITH INTERNATIONAL LAW
SHAREHOLDER LIABILITY IS LIMITED TO ORIGINAL INVESTMENT
EASIER TO TERMINATE THAN A EQUITY JOINT VENTURE
FULL CONTROL OF HUMAN RESOURCES
A Joint-Venture company, also known as JV
It is a business entity created by two or more parties, generally characterized by shared ownership, shared returns and risks, and shared governance. Companies typically pursue joint ventures for one of four reasons: to access a new market, particularly emerging markets; to gain scale efficiencies by combining assets and operations; to share risk for major investments or projects; or to access skills and capabilities.
The Chinese authorities encourage foreign investors to use this form of company in order to obtain exposure to advanced technology and new management skills. In return, foreign investors can enjoy low labor costs, low production costs and a potentially large Chinese market share. Joint Ventures are sometimes the only way to register in China if a certain business activity is still controlled by the government. e.g. Restaurants, Bars, Building and Construction, Car Production, Cosmetics etc.