By Sun Jin(Marlow), Chinese attorney at Law, Zhejiang Xinmu Law Firm
 
     
  Question: Dear Sun Jin, I wold like to establish my business organization in China, but I am not sure which type of formation is suitable to me, a WFOE (wholly foreign owned enterprise) or a RO (standing represeatitve office) ?  
  Answer:  
 


A WFOE is a company limited, a company limited is faily well-know in most countries, so we here mainly make an Introduction to standing represtative office of a foreign company in China.

For foreign companies who would like to have some tests in Chinese market, setting up a standing represetative office(here after referred to as "RO") is a best solution. RO of a foreign company is an organization of business contact acting on behalf of mother company, so a RO is not an independant Legal Person, and it can not carry on business/commercial actions that will make profits directly, in details as follows:

1. It can not sign any sales and puchase contract; and
2. It can not receive income payment; and
3. It can not invoice; and
4. It can not remit funds to abroad; and
5. It can not hire Chinese clerk directly but via some HR agents;

But it still can carry on some actions so as to enable the purpose of business contact, in details as follows:

1. It can apply it's own bank account; and
2. It can employ clerks, and the foreign clerks including the chief represtative in the RO can apply Z visa; and
3. It can carry on business actions under name of mother company; and
4. It needs to pay some taxes.

So a RO can help the mother company to do some business contacts, for example:

1. Soucing factories; and
2. Negotiation of new business; and
3. Cargo inspection; and
4. Goods showroom; and
5. Investigation of local market; and
6. Negotiation of cooperation of technology; and so on.

So before a foreign investors decide to establish a JV or WFOE, it's necessary for them to establish a RO to get knowings about Chinese markets. In fact, most ROs who do trade business in China are carrying on their daily business under name of it's mother company, or via one Chinese export agency company.

Advantage of formation of a RO when comparing with a WFOE:

1. Main advantage is that formation procedure is simple and quick; and
2. No strict registering capital requirements.

 


 
     

 

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