Set-up Joint Venture Enterprise
General Introduction
A Chinese–Foreign Joint Venture Company, it is established by foreigner(s) or overseas company and Chinese company in accordance with Enterprise Laws of Chinese-Foreign Joint Ventures and Enterprise Laws of Chinese-Foreign Cooperative Joint Ventures. Generally the proportion of foreign investor should not be less than 25%, and Chinese investor must be an enterprise only. There are two types of Joint Ventures, which can be incorporated in China, the Equity and the Co-Operative (sometimes referred to as the Contractual) JV. They can appear similarly but have different implications for the structuring of your entity in China – a point not always understood by some of the more rural local governments, but important for the foreign investor to be aware of.
Key Features
 EJV (Equity Joint Venture)
EJVs are governed by the Law of the People's Republic of China on EJVs Using Chinese and Foreign Investment.
Normally operation of a joint venture is limited to a fixed period of time from thirty to fifty years. In some cases an unlimited period of operation can be approved, especially when when the transfer of advanced technology is involved. Profit and risk sharing are proportionate to the equity share of each partner in the joint venture, except in cases of a breach of the joint venture contract.
- The Methods of Investment
Capital contributions to an EJV can be made in cash, intellectual property rights, land use right, materials, equipment or other non-monetary properties, which can be monetarily evaluated; legally transferred by government authorities and certified in a report from a Chinese-registered CPA firm before the joint venture can be approved.
- The Proportion of Investment
The investors in the proportion, which they reached a consensus and set out in the relevant EJV contract, must provide the registered capital  The EJV Law requires that the foreign partner to the venture contribute at least 25% of the Registered Capital for the EJV to achieve FIE status. There is usually no upper limit on the foreign partner's contributions (no more than 99%) except where Chinese law requires the Chinese partner to have a majority ownership (i.e. “restricted” industries). Profit is distributed in the form of dividend to the parties in proportion to each party's respective ownership interest.
Share holdings in a joint venture are usually non-negotiable and cannot be transferred without approval from the Chinese government. Investors are restricted from withdrawing registered capital during the valid period of the joint venture contract.
- The system of management
  • The Board of Directors, which must comprise at least three members, is the highest decision making body of the EJV and has the authority to make all major decisions concerning the EJV. The EJV partners are responsible for appointing the board members, and representation must be in proportion to each party's respective ownership interest in the venture. Under the EJV Law, either party may elect the Chairman, who acts as the Legal Representative of the EJV.
  • The General Manager is responsible for the daily management. The “deputy General Manager System” means that, if one side appoints the p
 CJV (Cooperative Joint Venture)
CJVs are governed by the Law of the Peoples Republic of China on CJVs Using Chinese and Foreign Investment. A CJV is organized by means of a contract rather than equity interest. 
In a Chinese-Foreign Cooperative Venture (also known as Contractual Joint Venture), the parties involved may operate as separate legal entities and bear liabilities independently rather than as a single entity. A cooperative venture may also be registered as a limited liability entity resembling an equity joint venture in operation, structure and status as a Chinese legal entity. This kind of partnership structure has limited applicability between foreign individuals or entities and Chinese entities.
The foreign investor is permitted to withdraw their registered capital or a portion thereof from the cooperative venture during the duration of the cooperative venture contract.
- The methods of investment
There is no minimum foreign contribution required to initiate a cooperative venture, allowing a foreign company to take part in an enterprise where they preferred to remain a minor shareholder. The contributions made by the investors are not necessarily to be expressed in a monetary value. The equity joint venture process can be contributed in different ways, such as labor, resources and services. Profits in a cooperative venture are divided according to the terms of the cooperative venture contract rather than by investment share, which allowing a more flexible schedule for return on investment in cases where one investor provides cash while the other party's investment is primarily in kind.
- The proportion of investment
The CJV law requires that the foreign partner to the venture contribute at least 25% of the Registered Capital for the CJV to achieve FIE status. There is usually no upper limit on the foreign partner's contributions (no more than 99%) except where Chinese law requires the Chinese partner to have a majority ownership (i.e. “restricted” industries). Profit is distributed in the form of dividend to the parties in proportion to each party's agreed contract.
- The system of management
  • The Board of Directors, which must comprise at least three members, is the highest decision making body of the CJV and has the authority to make all major decisions concerning the CJV. The CJV partners are responsible for appointing the board members, but unlike an EJV, representation on the Board of Directors is NOT required to be proportionate to the contribution by each party.
    The Chairman of the Board of Directors is the Legal Representative of the CJV.
  • The General Manager is responsible for the daily management, and there is no “deputy General
    Manager System” as in an EJV.
    For a CJV operating without a separate “legal person” status, a Joint Management Committee is required instead of a Board of Directors. The Head of the Joint Management Committee is the Legal Representative of the CJV. It is advisable to supplement statutory regulations by agreeing the extent to which the Head of the Joint Management Committee may represent the investing parties.
 The principal differences between an EJV and a CJV:
- For an EJV:
  • Each party must make cash or permitted contributions in proportion to its subscribed percentage of the EJV's registered capital.
  • Profit must be distributed strictly in accordance with the parties' respective percentage shareholding of the registered capital of the EJV.
  • Upon dissolution of the EJV at the expiry of the term of operation, the EJV's net assets are to be distributed to each party in accordance with its respective shareholding of the EJV's registered capital.
- For a CJV:
  • A party (typically, but not always, the Chinese party) may contribute non-cash intangibles in the form of "cooperative conditions". Such "cooperative conditions" may consist of market access rights, rights to use buildings, office space owned or leased by the party that is not subject to clear valuation. In exchange for such "cooperative conditions", the party is entitled to participate in the distributable earnings of the CJV.
  • Profit sharing in a CJV need not to be made strictly in accordance with the parties' respective percentage shareholding of the registered capital of the CJV but can be made in accordance with the agreement of the parties (e.g. the Chinese party may be entitled to a fixed profit share with the balance to be distributed to the foreign party, or the parties may agree on a multi-tiered profit-sharing arrangement that permits the foreign party to recover an amount equal to its capital investment on a priority basis, following which the profit split will be changed, etc.).
  • Upon dissolution of the CJV at the expiry of the term of operation, the CJV's net assets may be transferred to the Chinese party without compensation (thus operating in many respects as a BOT project) as long as the foreign party has been able to recoup its capital contribution during the term of the CJV. Such recoupment is typically funded by excess cash flow generated by accelerated depreciation of the CJV's assets. Such arrangement requires approval of relevant finance and tax authorities in China. Note that this capital recoupment is separate and distinct from possible priority rights to receive after-tax net profit distributions as outlined in the bullet point above.
 The advantages comparing to WFOE
In practice, control is always compromised whenever a Chinese partner is involved. The ultimate level of control is only achieved when a foreign investor deal with a WFOE without having any Chinese partner.

Advantages JV over WFOE

Disadvantages JV over WFOE

Fewer restrictions on project approval than for a WFOE, thereby possible in “restricted” industries where WFOE not allowed, such as, education, Accounting Firm, Human Resources agency (HR agent).

Need to do proper due diligence on, then negotiate the JV contract with a Chinese partner in China.

Upfront investment required from the foreign investor likely to be lower for a JV than a WFOE as shared with the JV partner.

Risk of inadvertently inheriting the baggage of the JV partner, including excess workers, poor reputation with past customers etc.

Assistance from partner in such areas as obtaining government approvals, labor recruitment, sourcing raw materials, acquiring land & production facilities, obtaining access to marketing & distribution channels etc.

No unilateral control of operations, and thus significant risk exposure to partner disputes and losing control of the JV. Moreover, in the case of an EJV, the partner has power of veto over the major decisions that require unanimous board approval, possibly inhibiting the EJV’s ability to respond to changes in market conditions.

Thus, potential for reduction in upfront investment risks compared to a WFOE due to transfer of existing customers and sales contracts from the partner to the JV.

As a JV will effectively be a going concern, allows less control over corporate culture than with a
WFOE

And also the potential for JVs to be up and running more quickly than WFOEs.

In contrast to a WFOE, a JV presents a higher risk exposure to IPR infringement and even “arming” a future competitor with know how, trade secrets etc

General Registration/De-registration Process & Time Line & Set up Costs
New Set up Process Time Line
(working days)
Cost of Gov.
(RMB)
Service Charge of R.S.(RMB)
STAGE 1 Registration for company legal license and documents
Step1 Preparation of required documents           
(Some of them need to be notarized by the local authority and identified by the Chinese Embassy in your country )
Unfixed Unfixed No
Step 2 Translation of required documents into Chinese  2-3 No 140/1000 words in Chinese (EN to CN)
Step 3 Company Name Registration with Ningbo Administration of Industry and Commerce  3 100 10000
Manufacturing WFOE only Registration in City Development and Reform Bureau 3   1500
The environmental assessment for establishment of enterprises examination and approval department About 7-15 About 4000-5000
Get the approval in City Development and Reform Bureau 7  
Step 4 Certificate of Approval by Ministry of Commerce or Foreign Economical Cooperation  15    
Food & Beverage WFOE
Only
Get the food sanitation license in State Food and Drug Administration     1500
Get the pollutant discharge permit in State Environment and pollutant bureau     
Step 5 Business License with Ningbo Administration of Industry and Commerce 7    
Step 6 The chops of company with public security bureau and chop shop 1 About 500
Step 7 Enterprise organization code with National Bureau of Quality Inspection 1 148
Step 8 Tax registration certificate with State Tax Bureau and Land Tax Bureau 1 0
STAGE 2 Open bank account (RMB & Foreign Currency)
Step 1 Foreign exchange registration and approval (Bank account IC card for foreign currency) with State Administration of foreign Exchange 1 0 1000
Step 2 Foreign currency and RMB Bank Account Open with any bank you appointed 3 0
STAGE 3  
Step 9 Financial registration. 1 0 Including in Stage 1
Step 10 Statistics registration 1 0
STAGE 4 Change to Permanent Business License
Step 11 Inject capital from investors’ overseas bank account Client control 0 /
Step 12 Capital verification by certificated public accountant 7 1000-3000 500
Step 13 Exchange Business License after capital paid up. 7 0
STAGE 5 Registration of Import and Export License (Trade / Manufacturing only)
Step 1 Obtain the Import/Export registration license in Ministry of Commerce or Foreign Economical Cooperation. 1 0 1500
Step 2 Get foreign currency registration certificate for import/export purpose in  State Administration of foreign Exchange 1 0
Step 3 Obtain the Custom registration certificate (E-port card) in China Custom.  5 50
DE-REGISTRATION
Deregistration of JV is quite similar with WFOE in major steps of the process, the main trivia is to obtain the documents from both foreign and Chinese partners, and the solutions should be made by BOD with all partners due to its "joint" nature .
De-registration Process Time Line
(working days)
Cost of Gov.
(RMB)
Service Charge of R.S.(RMB)
Step 1 Clear the tax and submit Tax Clearance Declaration Report (an audit report prepared by CPA firm) to get the "notice of cancellation of tax registration" from tax bureau. Unfixed, about 1-2 months 0 Own accountant in charge of this step.
Step 2 Online application and Submit to Foreign Trade & Economic Cooperation Bureau for cancellation of WFOE to get Cancellation of Letter of approval and Certificate of approval     RMB 5000
Step 3 Announcement on appointed local newspaper & Cancellation of Company Business Licenses 1 RMB200-500
Step 4 Dissolution of Organizational Code Certificate (original and copy) 1  
Step 5 Get Cancellation Letter of Alien Employment Permitfrom labor bureau 1  
Step 6 Dissolution registration with customs (applicable to trading, manufacturing WFOE only)    
Step 7 Bank accounts closure and capital repatriation 1  
Step 8 Cancellation of Company stamps 1  
Step 9 After all these procedures are finished, State Administration of Industry & Commerce will send a "notice of the approval of cancellation for WFOE."    
   


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