Formation of Business
Entities in China
Junting He 25002848
Haoyu Zhang 25544713
Kaizi Zhang 25866419
Yifu Wang
25396544
Suting Sun
25776207
Binglin Chen 26224844

Overview






Types of business entities operate in China
Formation of different business entities
Issues relating to existence of business entities in
China
Roles of promoters

Timeline(1)

In the beginning

Early stage

Various forms depend on the type of ownership.

Getihu

1988

Private enterprise formally recognized 1990s

laws and regulations which enable the establishment of different types of companies Timeline (2)
Three Main Groups
Domestic Enterprises

- State-owned Enterprises
- Collectively owned Enterprises
- Stock cooperative enterprises
- Jointly operated enterprises
- private enterprise
- Limited liability companies
- Companies limited by shares

Enterprise formed by investors from HK
Macau & TW

- Equity joint ventures
- Cooperative joint ventures
- Wholly foreign-owned enterprises Enterprises formed by foreign investors

- Equity joint ventures - Cooperative joint ventures - Wholly foreignowned enterprises
-Limited liability company - Company limited by shares Main four types of business entities for
Domestic enterprises
Type
LEGAL PERSON

State-owned
Enterprise
One

Collectively owned Enterprise
One

Stock cooperative Enterprise
One

Responsibility

Civil liability

Civil liability

Responsible for profit and loss

Management

Contracting out
& Leasing

Democratic management Democratic management Director
Responsibility
System

YES

YES

Depends on whether have board of director Jointly Operated
Enterprise
- >=2 for profit
- 1 for non-profit
Civil liability and responsible for profit and loss
Depends on the operated groups
YES

Sole proprietorship

Formation of Sole proprietorship (1)
Requirements:
 A natural person
 A lawful name

Capital

A fixed production or operation place

The necessary personnel

Formation of Sole proprietorship
(2)
Establishment
 Date: within 15 days
 Business licence

Cannot engage business activities before the issue of the business licence

Formation of Sole proprietorship
(3)
Changes of registration







Apply to the AIC for change of registration
A new business license
Or a notice of change of registration
Or disapproval of the requested change
An annual review
Revocation of Business license

Sole proprietorship - rights






Ownership rights
Management of the business
Borrow loans
Acquire land use rights
Other rights

Sole proprietorship - Liability




Unlimited liability for the debts
Social security contributions
Taxes

What is partnership?
• A business entity set up by two or more partners for a view of profit. • within the territory of China
• Partnership agreement
• partners contribute capital, share profit, jointly and severally liable for the debts of the partnership

Partnerships (1)




General partnership
Special-general partnership
Limited partnership

General partnership

Partners can be natural persons, legal persons, or other organizations
 Partners bear joint and several unlimited liability
 wholly state-owned companies, state-owned companies, listed companies, public institutions, and social organizations are excluded.


Limited partnership
• requires 2 to 50 partners, one of which must be a general partner
A general partner is someone who bears unlimited liability to debts

limited partners bear liability of the debts of the partnership to the extent of their capital contribution Special-general partnership
• provide professional service
• special skills and knowledge
• law firms, accounting firms, design firms,…
A partner will bear unlimited liability if he/ she cause the partnership to incur debts due to negligence, while others will only be responsible for liabilities to the extent of their shares of

If debts incurred are not the result of someone’s intention or gross negligence, then all partners should bear unlimited liability
for