1 Determine if the proposed WFOE will conduct a business approved
for foreign investment by the Chinese government. For example,
until recently, China prohibited foreigners to hold business like
education, magazine. Be sure your business will be encouraged.
2 Provide documentation. Now if the investors are already in China,
just show passport copy and his bank letter demonstrating its
financial adequacy, office lease contract.
3 Submit the documents needed in Chinese. The last one may be
translated into Chinese or summarized in Chinese.
4 Get Chinese government approval for the project. In China, unlike
in most countries with which Western companies tend to be familiar,
approval of the project by the relevant government authority is an
integral part of the company registration process. If the project
is not approved, the company will not be registered.
The following documents for the proposed WFOE must be prepared for
(1) Articles of Association. This document will set out all of the
details of management and capitalization of the company. Nothing
can be left for future determination; all basic company and project
issues must be determined in advance and incorporated in the
Articles. This includes directors, local management, local address,
special rules on scope of authority of local managers, company
address, and registered capital.
(2)Feasibility Study. The project will not be approved unless the
local authorities are convinced it is feasible. This usually
requires a basic first year business plan and budget. We typically
use the client produced business plan and budget to draft up the
feasibility study (in Chinese) that will satisfy the requirements
of the Chinese approval authority.
(3)Leases: An agreement for all required leases must be provided.
This includes office space lease and warehouse/factory space lease.
It is customary in China to pay rent one year in advance and this
must be taken into account in planning a budget because the
governmental authorities will be expecting this.
(4)Proposed personnel salary and benefit budget. If the specific
people who will work for the company have not yet been identified,
one must specify the positions and proposed salaries/benefit
package. Benefits for employees in China typically range from
around 30% to 40% of the employee base salary, depending on the
location of the business. Foreign employers are held to a strict
standard in paying these benefit amounts. The required initial
investment includes an amount sufficient to pay salaries for a
reasonable period of time during the start up phase of the Chinese
e. Any other documentation required for the specific business
proposed. The more complex the project, the more documentation that
will be required.
5 Prepare all of the above documents in Chinese.
6 Wait. It usually takes two to three months for governmental
approval, depending on the location of the project and its size and
scope. Large cities like Shanghai tend to be slower than smaller
cities. The investor must pay various incorporation fees, which
fees vary depending on the location, the amount of registered
capital and any special licenses required for the specific project.
Typically, these fees equal a little over 1% of the initial
On large and/or complex projects, the approval process often
involves extensive negotiations with various regulatory authorities
whose approval is required. For example, a large factory may have
serious land use or environmental issues. Thus, the time frame for
approval of incorporation is never certain. It depends on the type
of project and the location. Foreign investors must be prepared for
this uncertainty from the outset.
Further information concerning Company Formation, please freely
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