Doing Business in China: The Corporate Form

Posted by Li Wei on January 29, 2010 under China Law | Be the First to Comment

Under the Company Law of China (the “Company Law”) there are two basic forms of companies in China for both local companies and FIEs; limited liability companies and companies limited by shares. The majority of private companies in China (domestic companies, most joint ventures and wholly foreign-owned enterprises) take the form of a limited liability company.  A limited liability company may be set up by between two and fifty shareholders.

Articles of Association are the company’s constitutional document. The original capital investment is registered in China and there are requirements for the minimum amount of capital. Under the Company Law, limited liability companies are required to have a minimum registered capital of RMB30, 000. For joint-stock limited companies, the minimum registered capital is RMB 5 million. However, these legal requirements do not have much relevance in practice. The Ministry of Commerce has considerable discretion when approving a company and generally requires higher levels of registered capital than the minimum legal requirements. The registered capital levels are subject to the specific business scope of the FIE. If the business scope is in a more sensitive or specific area then it is likely that a higher level of registered capital will be required. Furthermore, a higher level of registered capital will generally be required for operations with high initial capital costs, such as infrastructure projects.