Due Diligence
9
February 2015

6 Common Types of Company Registration in China

If you are considering starting a company in China, or doing business with a company in China, it is important to first learn a little about how the system of company registration in China works. The more you educate yourself about Chinese laws and business procedures, the more success you will have conducting business in the country.

Understanding company registration in China is also an important consideration if you are assessing the legitimacy of a Chinese company and the business information and credentials they are providing you with.

In this article we present 6 of the most common forms of company registration in China and help explain to you how you can identify which is which.

Common Types of Company Registration in China

Here are 6 of the most common forms of company registration in China, starting with 3 types which are associated with foreign companies.

1. WFOE

  • Acronym explained: Wholly Foreign-Owned Enterprise
  • Chinese: 外商独资企业 (pinyin: Wàishāng dúzī qǐyè)
  • Also known as: WOFE

WFOE refers to a company in China that is solely established by foreign parties, and that does not have direct involvement of a mainland Chinese investor. Setting up a WFOE requires an agreed level of foreign capital to be invested and registered with the authorities.

It is currently the most popular form of incorporation for foreign companies in Mainland China as it allows them complete control of their operations.

2. JV

  • Acronym explained: Joint Venture
  • Chinese: 合资 (pinyin: Hézī)

Joint Venture is a special form of company registration in China where there is both a mainland Chinese party and a foreign party.

When China started opening up to foreign investment JV was the main method for foreign companies to get into the Chinese market and they did this by partnering up with a local Chinese company to create a joint venture.

The plethora of joint venture horror stories and the emergence of WFOE as a better alternative has led to the number of new JVs decreasing year by year. However, in some restricted industries, such as media, operating as a JV is the only option for foreign companies looking to get into China.

3. Rep Office

  • Acronym explained: Representative Office
  • Chinese: 代表处 (pinyin: Dàibiǎo chù)

The first thing to say here is that a Rep Office isn’t actually a legal entity in China; it exists solely for the purpose of representing a foreign-registered company within China.

Opening a Representative Office is a reasonably simple way for a foreign company to have a limited presence in China, but there are heavy restrictions on what they can do. For example it cannot directly employ any staff or even collect any money!

Much like JVs, Rep offices are becoming increasingly rare as foreign investors choose to set-up WFOE’s for their China operations.

4. SOE

  • Acronym explained: State Owned Enterprise
  • Chinese: 国有企业 (pinyin: Guóyǒu qǐyè)
  • Also known as: Government Owned Corporation (GOC)

Not so long ago all businesses in China were owned by the government, but since reforms started in the 1980’s the market share of SOE’s has decreased markedly.

These days the phrase “State Owned Enterprise” is most often associated with the word “reform”, but make no mistake SOEs still contribute hugely to China’s economy and are considered to be some of the world’s largest companies.

Most State Owned Enterprises are set up to operate in specific key sectors considered to be of strategic importance by the government, such as aerospace, telecommunications or electric power.

5. Private Enterprise

  • Chinese: 民营企业 (pinyin: Mínyíng qǐyè)
  • Also known as: Non-State Owned Enterprise / Civilian Owned Enterprise

The most popular form of company registration in China, the rise of private enterprise has been largely responsible for transforming China from the bleak past of inefficient state controlled monopolies and government handouts to a high-growth, vibrant modern economy.

A private enterprise is a company registered by an individual, group of individuals or even other companies without any government ownership.

When doing business it is important to remember that all companies operating in Mainland China must be legally registered and possess a valid business license.

6. Individually Owned

  • Chinese: 个体户 (pinyin: Gètǐhù)
  • Also known as: Small Private Company / Sole Trader

“Individually owned” is the simplest form of company registration in China, and is primarily used for very small companies. As the name suggests, it is a company form in which the company is owned by only one individual, who must be a Chinese national.

It can be understood to be China’s equivalent of a Sole Trader and is a common form of registration for Chinese individuals operating a simple business such as a basic restaurant or a shop.

Identifying More Specific China Company Types

The 6 company types identified in this article provide a general overview of the various forms of company registration in China.

However, when the company type is presented on a Chinese business license a more specific term is usually used.

For example a WFOE invested by an American company might be identified as: “Limited liability company (solely invested by a foreign legal person – country: USA)”

For more details on this view the Chinese Company Type Terms Glossary.

How to Identify the Type of Company Registration in China

The easiest way to identify what type of Chinese company you are dealing with is to get hold of a copy of their business license (beware of frauds), the latest version of which looks like this:

The company type will be identified by the heading "类型" which is the third line in the above image. Of course, this information will only be identified in Chinese characters so you may need the assistance of a Chinese speaker.

A More Convenient Approach

Another method is to use one of China Checkup’s company verification services.

Our company verification reports can be conveniently ordered online and help you to confirm all of a China company’s standard registration details with ease, including their company type.

Further reading