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Q: Do i really need my own company - Read more below
Hi, this is my first post here.
I plans to build a few machines, for export to a customer in Europe, here in China. The thing is that i don´t have my own company here, I have one in HK though. The project will take aprox. one year and I will have staff building them under my supervision now and then. A lawyer told me not register a company as it will be too expensive for a foreign and take up to a year to get all licenses, but suggested to partner with some existing Chinese company.
I have Chinese friend / business partner since 7 year who has offered to register a company in his name. He says it is easy and not expensive.
So my thoughts and questions are:
How long time does it takes for a Chinese to register a small company?
What will it cost to register and then to run per month except cost for staff, rents etc.?
Is the company required to have an auditor or is a in-house bookkeeping enough?
My friend tells me not to worry about exporting the machines later. Is it so easy to export things out of China? I have heard that companies needs export licenses. But he says that is easy to get around buy using export agents.
Regarding me working or not, he says that I am his customer on inspection and CQ so no need for work permit as I am here on a business visa.
I´m asking you guys here because he just says "Don't worry, I will take care all" But THAT makes me even more worried. He is a honest guy but sometimes takes things way too easy which sometimes ends ups in trouble later. I have other, but MUCH more expensive alternatives but had hope to avoid them as it would eat up all my profit.
I´m not sure this is the right forum for business questions as there are no business area here. Any suggestion on where else I could post this?
I would be happy to get your opinion it you have some knowledge in this area.
Thanks so much,
Zoom
10 years 42 weeks ago in Business & Jobs - China
I wouldn't worry so much about a partnership eating up your profits so much as you losing control of the whole venture. I've known a few people, and there's articles a plenty online about this, who've had their ideas "appropriated" by their Chinese partners and they've been threatened with deportation/jail time to boot.
The latest trend in cases you are considering is for the Chinese courts to confer entire ownership on he Chinese partner, and the foreign investor loses almost everything. The Chinese partner may have to pay a token amount for "compensation," but it will be nowhere what you have put into it.
I would seriously consider SE Asia rather than China. There are no real benefits to setting up small business in China. It is high investment, low return, and the Chinese government, or Chinese partner, can seize the business any time they like.
Try Vietnam for cheap manufacturing.
I only know one Chinese person I would trust as a partner in business, my wife.
I read recently that they are easing the rules on foreigners setting up company on the mainland.
Note. Depending on the type of product and to precisely what market it is to be sold, it can be financially better to send the product as pieces and assemble using workers in the market where the product is to be sold. You will need to have people that knows how to put them together anyway, for servicing etc.
Scandinavian:
To build on what Traveller is saying. I have an acquaintance who so far has had two business ventures pretty much stolen from him. The first one was at the time of selling a successful business, Chinese partner ran off with a suitcase of money, never to be found again, the second one was the Chinese partner one day showing up with a 3rd guy and just saying "Now this guy owns half of your share of the company"
Then of course there are the bigger stories, like the American office machine company that had an entire factory stolen. (look up "Fellowes")
Zoom, if you do have a license in Hong Kong, you do not need a license for mainland China. It is a loop hole and can be verified on the Hong Kong Ministry of Business website, you are still under the tax rules but another license is not needed. You do not need an export license if your current license deals with exporting equipment. That being said, I agree with everyone else when it comes to trusting Chinese, I would never disclose any information on who my clients were or what country the equipment would be shipped to, only give them enough information to have the equipment built and leave the rest to yourself, I would use a foreign logistics company for all shipping.
Zoom:
I see, but i don´t think i have any manufacturing licenses in my HK company. It is just a letter box company with a bank account. How can i obtain these necessary licenses in HK?
I set up my own Wholly Foreign Owned Enterprise (WFOE) a little over three years ago. I have also helped three sets of European nationals do the same.
I will try to answer your questions from my perspective: To register a small enterprise in China requires approximately three weeks to complete. There are certain factors that may elongate the process such as a national holiday falling somewhere in the interim period.
Once you have signed the agreement at the local investment bureau and they have conducted the necessary searches, you can begin the process of setting up the company whether you have the business licence in your hand or not. However, I have never known the business licence to take more than three weeks anyway. I find it almost impossible to believe it would. The reason for that is you must transfer and report registered capital within a fixed period of time. Without the licence and the company stamps (a.k.a. chops), you cannot open the registered capital account at any bank thus you cannot transfer the funds. The Chinese government partake in many things but the one thing you can trust is that they will not create barriers to getting other people's money.
It is relatively cheap to actually set the company up. Every government investment bureau issues guidelines in English that show how much you have to pay. It is impossible to say on here because some of them are given as a percentage of the registered capital you invest. As a general guideline, 5000 rmb or so normally covers the cost of name searches, administration and issuance of the company stamps.
That gets you on your way. You then have to agree a sum of registered capital for your business. The registered capital is the cash you inject to get the business moving. The amount required depends on many factors such as location, type of business etc. Your business scope will be manufacture and export. Manufacturing registered capital can be quite high because you must show that you can cover the purchase cost of raw materials, machinery etc.
Trading (import/export) can be relatively low. In fact remarkably low from recent case studies. Two friends of mine opened a trading company on just 5000 euro registered capital of which 20% is required within one month and the rest within two years. Registered capital varies significantly from case to case and you would be well advised to get advice from a competent third party are what would be a reasonable amount for your business.
The subject of business running costs cannot be assessed on a generalist basis. Obviously, there are so many factors that influence the running costs of a business in any country. That one is for you. A strong business plan is needed and that requires your own research.
Be careful on the subject of labor costs. Chinese labor appears cheap but you must factor in the cost of various insurances that add up to an employer contribution of 31%. Also, whilst it has been traditionally possible to employ staff for something like 2000 rmb per month, the government is clandestinely introducing a requirement that employees of privately owned businesses pay income tax. Given that the income tax threshold for Chinese nationals is 3500 rmb, you have to exceed this in payment to fulfill the requirement. The double whammy is that the actual cost of the 31% insurance increases according (31% of 3500 is greater than 31% of 2000). This is likely to double the cost of labor.
There is no requirement to appoint an auditor or accountant as such but the the bureaucracy surrounding government business inspection in China all but makes it impossible to survive without that kind of support. You can appoint your own or you can subcontract. Having a good accountant is an essential part of conducting business in China. I pay 500 rmb per month for mine and she saves me a goddamn fortune every year. It is best you find one with good government relationships.
Export agents are unnecessary and costly. They will wreak havoc with your bottom line. A good accountant will help you with the export authority.
Finally, as for your visa, you are being very badly advised. Technically, you could get away with working on 'F' visas but it is not in the least bit legal. As the legal representative of your own WFOE, you will be entitled to a 'Z' visa and RP. If you set up your business and use your capital in China for the purposes of obtaining profit (that is to say trading), you can be deported on a whim if you only have an 'F' visa. Your investment, intellectual property and assets will stay here, you will go. There will be no legal parameters by which you can defend yourself. You will subsequently also be open to several kinds of blackmail.
Note also in reply to several posts in this thread, there is no legal requirement for a foreign national to partner with a Chinese national for setting up a business. There are many entirely foreign owned enterprises in China and there is no reason that this type of business should not be run as WFOE. Secondly, there are significant advantages to setting up business enterprises in China. You must, however, start from the perspective of having a very strong business plan. The research you do must be comprehensive and you must fully understand the pitfalls. If you are smart, you can overcome many of the prevailing risks associated with doing business in China. If you are careless or reckless, China will destroy you rapidly.
bill8899:
If you are successful and that offends the right people, China will destroy you quickly. It's a little different here.
Kaiwen:
Smart guys counter by running WFOE's on minimal capital and assets. There are certainly safe ways to protect like getting cash assets out as soon as possible. However, this is not solely the domain of foreign owned enterprises. Smart Chinese business owners do exactly the same.
bill8899:
True, true. Yes, independent Chinese businessmen know a thing or two.
Kaiwen:
You would be surprised what a negative attitude that many very successful Chinese business people have towards the government here (it can more than rival the best that this forum can throw at the government) and how keen some of the are to pass on their knowledge. Believe it or not, even Chinese companies of a certain size and reputation have a vested interested in the survival of small and medium sized enterprises. There are sufficient opportunities to network in China for the business community. The one obvious aspect to networking is a combined strategy for success.
OP, your friend will register the company in his name? Great. You're screwed.
Can I register a company for you? You pay, my name. Come on.
Zoom:
He could screw me many times before. There is nothing for him to "steal" from this arrangement as it is my foreign customer and my knowledge that is worth anything here. He could black mail me though but i have never seen any such behavior before during the 7 years we have worked together. No in this arrangement HE IS the one who takes a risk if i just disappears and he have to take all the costs to shut down the company.
Wow so many replies already, Thanks guys,
A special thanks to Kaiwen for your informational words.
I have really thought about about open my own company here in China but hesitates when i see what the lawyers are asking for to do it for me. Also, the project time is only one year. After that i might get 1-2 more project from this customer, or not and i will be stuck with a Chinese company that will cost money every month.
The thing is that i resides in Thailand since 10 year and i am very happy with it, but i have hard time to support my self there as machine building and part making/suppliers companies are an absolute joke over there.
I have been in China for like 20+ times during last 7 years I have entrusted my partner sums up to 100 000 rmb and he have never cheated me.
We will hardly have any machines at all. We will outsource part manufacturing and only assembly the parts and electronics our self. And i have been told that i need many different licenses like environment license/approval, manufacturing license. export licenses etc and that include registration of the company would end up in nearly 100 000 rmb. Also for manufacturing i would need a paid up capital of MORE than 1 000 000 rmb.
I will need around 200 sqm floor space preferable in Shenzhen, BaoAn district or Dongguan, (any better ideas for machine making/costs?) some benches and hand-tools, 8-10 local engineers, technicians, workers and a secretary, thats all. Do really need a manufacturing and environment license and 1 000 000 in paid-up capital for this arrangement?
What SHOULD such WFOE arrangement cost to set up for me? Im on a time constrains here as i have already sign the contract with my customer so the time is ticking.
Thanks again for you time,
Zoom
Kaiwen:
Approach the local investment bureau connected with the government where you wish to set up the business. They will be able to give you all of the necessary information immediately. There will undoubtedly be people with very highly developed English skills within that department. The registered capital you mention looks very realistic for a manufacturing operation. It is probably the base minimum that they will allow.
Kaiwen:
A million RMB registered capital for a machine manufacturing company is not steep. In fact, it is exceedingly low. Low cost businesses such as consultancy and trading offices can get away with less as the only costs are really office rental, office equipment and perhaps a couple of employees. To operate a manufacturing company, you would undoubtedly have to buy raw materials. The labour costs would be much higher as would facility rental. There would be manufacturing costs, distribution costs, shipping costs, sales & marketing and import/export tariffs. After all of that, the buyer may expect a certain number of creditor days before you receive payment. Thus, cash flow is extremely difficult to manage. All of this is accounted for when setting the minimum registered capital investment parameters.
Kaiwen:
Sorry, I wish to point out that the million RMB represents registered capital. It IS NOT the cost of setting up the business. The money you pay to the government is not a lot. As I said earlier, I would be surprised it was much in excess of 5000 rmb total. The registered capital is the money that you put into your own business to run it. Once it has been inspected by the government, it is yours to use.
Zoom:
I get it, it is is not a cost. But i don't have 1 million laying around. I will get smaller payouts during the whole project and all are less then a million. So the system does not allow me to do the correct thing.
Shining_brow:
Zoom - was at 1 million in registered capital, or in what was required in the paid-up capital (within a couple of months??) If it was the paid-up, then you're telling us that TOTAL registered capital is over 5million... yes?? (with the remaining 80% due within 3 years or so).
Otherwise, if your total registered capital is only 1 million, then you should only need to come up with about 200,000 within a couple of months!
What about i´m setting up a Mechanical Engineering company... It should go under consultancy company and require less capital, right? And as enginering company we would be able to assembly the machines that we have designed, right or wrong? Im just trying to find solutions. I might be able to but up 500 000 RMB in paid-up capital... What do you guys think?
Kaiwen:
Consultancy companies provide consultancy. You could, as a consultant, go to another engineering company with your design and ask them to make it. If you make the machines yourself, you are a manufacturer. The distinction is clear. But instead of running around in circles, why don't you approach the government investment bureau where you wish to set up the business and ask them? Negotiate, negotiate, negotiate. If you don't have the capital to hand, negotiate a time for putting the money up. They may give you two or three years to present all of the capital.
crimochina:
not breaking the law at all. i'm going to manufacture things can i register my company as a consultancy firm. yeah not breaking the law at all.
take the next plan out to india you dishonest pecker
a lawyer telling his client to break the law, only in china. register the business. if you are retarded go ahead and register it in your friends name. you will not see a penny from the business once he gets your contacts.
very simple, do not come to china if you plan on breaking the law.
Zoom:
Hmmm, your word, retarded, good description..... Where in this text do they suggest me to break the law?
A lawyer told me not register a company as it will be too expensive for a foreign and take up to a year to get all licenses, but suggested to partner with some existing Chinese company.
Zoom:
And on a F visa i'm allowed to conduct QC, supervising and inspection as long as i don't upholds any wage from the company who i am visiting and have ordered merchandise from, and do not stay here for longer periods (less than 183 day per year)
crimochina:
you just added the "partner with some existing company" go puck yourself because now your a dishonest douchebag
Zoom:
What?????? Man, calm down... Nothing have been changed. Ask the moderators. I have the same post on few other forums too.
crimochina:
then it must be my drinking. either way your post smells of dishonest business practices.
Seems, you found the loop hole, it is called a virtual office but contains a physical address, this is all the license that you need to open and run a sister company here in China under the same license, but this license should be in the area of what you are doing. If it is not, you need to reapply for a license that will verify you have expertise, thus, having the ability to manufacture goods here, using a logistics company to export would be the best bet.
Zoom:
Ok im not sure if i follow. Yes, i have a HK-company with virtual office in HK. So you mean that i can set up sister office in let say BaoAn district and start to hire people and building our customers machines there and then export then out of china? Do i still need a manufacturing license for the sister company then?
Kaiwen:
I guess you have not considered the problems of this proposal. The problems are to manufacture this machinery, Mr Zoom is going to need some staff. Those staff are going to expect a labor contract and various mandatory government insurances paying. That means Mr Zoom is going to need to register is manufacturing facility with the local Labor Supervision Bureau. They will check that the premises is a proper commercial facility and will not accept a virtual address. You could, of course, pay another factory owner and use his registered production facility. However, both the company that agrees to this arrangement and Mr Zoom are potentially committing serious violations of several business laws. Also, the Labor Supervision Bureau have staff that risk assess various kinds of businesses. Because Mr Zoom is a manufacturing plant that is likely to involve things like manual handling, using dangerous equipment and handling potentially dangerous chemicals such as lubricants, it is likely that Mr Zoom's production facility will be inspected before a safety certificate is issued. There are many issues in there can be resolved with the right "guanxi", however it is doubtful that Mr Zoom has any of those connections.
Yes, I am a bit confused, I was thinking that he would be outsourcing the labor and only opening an office not a manufacturing plant. If this is the case Mr. Zoom, you will need quite a bit of money and the legalities have just went up ten fold. The virtual address is for Hong Kong but the license is good for Mainland in which you can use it to register your business here, meaning you can rent an office in mainland without it being illegal and going through the some what hassle of opening up a sole foreign business, it is what my company does, we do not have a license from mainland, we have one from Hong Kong, we are located in the same building as the American Visa Services part of the Shanghai US Embassy, we also have one in Guangzhou in the same building as the Visa processing for the US Embassy along with several other companies offering the same services, but as Kai has stated, the only danger our employees would be in, would be brutal paper cuts.
I have now talked to an agent about registering a WFOE. They are telling me that it will take at least 5 month before I will be able to start to operate. I'm willing to do it but I have to deliver the machines before end of this year and it vill take aprox 4 month to make them.
So I have to find another solution quickly. As some knowledge guy mentioned earlier I could open a branch office of my HK based company who then supervise my friends company's manufacturing of our machines as our HKD company is their customer.
Will a branch office be able to receive money from abroad? I think so, but are they allowed to make payments to suppliers in China for equipment ordered from the mother company in HK?
Can this be a feasible solution?
Zoom, any income that is outside of China is no problem, if you hold the HK License you can also accept local currency without problems.
Zoom:
I don't know what license you are referring to, My HK based company's bank account can hold RMB but not many companies in China are allowed to receive RMB from abroad.
Zoom, any other information would require pay, sorry, but I have learned never do anything for free, besides, I have given you enough information, you would not be receiving rmb from abroad, I suggest American Dollars, Euro, or GBP which should be going into an offshore account, there is difference between paying taxes for holding a company in China but you should not be paying taxes for sales on exports when you are building a plant and employing Chinese. I will make a suggestion, especially now that China's economy is tanking, rent a plant, not in a high cost area, but in a tier 2 or 3 city would do, my wife's sister has two plants in Wuhan, one is in a tier one city, the other in the local village, she rented it out to a Indian at a lowly sum of 20K rmb per month, I do believe that would be the way to go.
Zoom:
What does the plant contains? Could be an interesting solution. Let me know more.
Hmmmm.. I had a new "high profile" company (Path to China) telling me that minimum capital in Dongguan for a WFOE manufacturing is 5 million RMB 
He is the first one mention such high amount. Is that amount really correct?
Kaiwen:
Legally it is not correct but, in practice, it might be correct. That is to say local investment bureaus can set registered capital at whatever level they deem appropriate. Also bear in mind that the costs of registration are set as a percentage of the agreed registered capital. Thus, the higher the government can set your investment at, the more they will be able to charge for the registration process. However, be careful where agents are concerned. A common trick is to quote an artificially high figure for something then tell you that by using their special guanxi and paying bribes, they can get you a special deal. Then charge you through the nose for this "special service". You could end up paying an agent tens of thousands of rmb for something you could have done yourself for free!
Zoom:
I see, Im in Dongguan now and i will make a visit there. Thanks Kaiwen
That is not correct, it is a minimum of 1 millions US, that is why I was assuming you would be renting a plant and using Chinese workers to make the products, and a logistics company to ship your products, that being said, this money is for insurance purposes mostly, manufacturing jobs can be more hazardous to employees and that would lead to greater investment, last time I looked into this, the building of the plant may cover some of that but some money most be frozen for lawsuits or injuries.
Zoom:
A million US$... Most websites mentions US$140,000... Mama mia
Zoom, this lies in different tiers on what your business will be, yours sounds a little more dangerous, therefore and chances are that someone getting hurt is highly likely, making your investment large enough to cover physical damage, death or lawsuits.
Foreign Investor Partnership Enterprise (FIPE) seems to be an very interesting option for me. Tomorrow we will head to the Dongguan Administration for Industry& Commerce and ask. It seems that it is mandatory to use an authorized PRC agent that is authorized or permitted by relevant authorities to act as a sponsor for registration of a FIPE, according to PathToChina.
/Z
Today I went to Dongguan Foreign Investment Bureau. they were wery friendly but informed us that:
BOTH WFOE AND FIPE MUST COME UP WITH MINIMUM OF US$1,000,000.. NOT NEGOTIABLE, PERIOD.
Kaiwen:
Then try other areas outside Guangdong. You may drop lucky. The problem you are encountering is simply because you are seeking a business licence with scope for machine manufacture. That was always going to be a stumbling block.
we didn't get much help in Shenzhen either. But the minimum registered capital of WFOE manufacturing is only 500,000rmb in Shenzhen though. we have visited a few agents and it seams to be the only way get information in decent spoken English. A WFOE will cost us 12,000 usd and a FIPE cost surprisingly 10,000 usd, but it is due to the fact that few officials doesn't know much about FIPE and therefor complicate the procedure.
Kaiwen:
For the language issue, I would suggest that you advertise in the jobs section of this website (or Beijinger, Shenzhenparty etc.) and get yourself a decent freelance translator with business background. It would be worth agreeing a reasonable daily rate for them when needed for your negotiation. Agents will negotiate a deal that provides the best deal for themselves, not you. Some of the things are best done without the help of an agent.
jayz123:
For doing trading company in China, if your supplier or customer doesn't want the invoice, then you can set up Hong Kong company to do business with the local chinese company.
If they want Chinese Invoice aka fapiao, then you have to set up WOFE in Shenzhen or anywhere in China. For wholesale trading WOFE, the minimum registration capital is RMB500,000. As you mentioned in Dongguan, Dongguan is 2nd-tier city and the policy there is not as transparent as in Shenzhen. So that's why they require the minimum registration capital is RMB3,000,000.Actually based on the company law, the minimum should be RMB500,000.
If you wanna know more info on WOFE, you can contact me via consultant01@0086rich.com
Best Regards
Chester
