Set Up Joint Venture in China

In order to expand international economic cooperation and exchange of technology, it is promoted by China government to form a legal enterprise by Chinese parties, either individual or legal entity, and foreign parties, either individual or legal entity.

A Joint Venture is a business arrangement in which two or more parties agree to pool their resources for the purpose of accomplishing a specific task. This task can be a new project or any other business activity.

Each of the participants in a Joint Venture is responsible for profits, losses, and costs associated with it. However, the venture is its own entity, separate from the participants’ other business interests.

A Joint Venture has usually been used by foreign investors to enter the restricted industries such as: Education, Entertainment, Mining, Hospital, Banking, Road Construction, Transportation etc. Please note that for a sino-foreign joint venture, there must be a board of directors. The joint venture generally consists of at least 3 persons, including a Chair person and two directors.

Compared with WFOE, you will share all the management, profits and losses with your partners. And maybe in this way, you can conduct business effectively with your Chinese partner, since he/she can offer detailed knowledge about Chinese market together with your own specific advantages.

Advantages of a joint venture

Access the business sectors which are restricted (not prohibited) in equity ownership terms by the Chinese authorities.

Gain insights from the local partner’s experience in doing business in China.

Leverage the partner’s existing channels for sales and distribution.

Obtain local treatment when participating in official and public tenders.

When applying for the establishment of a joint venture, the Chinese and foreign participants in the joint venture shall jointly submit the following documents to the examination and approval authority:

1) Application for the establishment of a joint venture;

2) The feasibility study report jointly prepared by the participants;

3) Joint venture agreement, contract and articles of association signed by the representatives authorized by the participants;

4) List of candidates for chairman, vice-chairman and directors appointed by the participants;

5) Other documents stipulated by the examination and approval authority.

The aforesaid documents shall be written in Chinese. Documents (2), (3) and (4) may be written simultaneously in a foreign language agreed upon by the participants. Both versions are equally authentic.