My law firm’s China company formation lawyers are often asked about the steps it takes to form a China WFOE. So often, in fact, that we long along drafted a stock response to that question. Figuring this response would be helpful to our faithful readers, I am running it below. Please note that the below is a generic roadmap for WFOE formation and the exact details for forming a WFOE in China will depend on, among other things, the WFOE’s business scope and the city/district in which the WFOE will be formed.
Generally, if all goes smoothly, the overall process will typically take 3-5 months. We do not break down each of the steps as to time because the time involved for each step can vary wildly, depending on (for instance) how long it takes to prepare financial information, negotiate a lease, obtain documents from the landlord, authenticate relevant documents, and validate the corporate structure. Lately though the Chinese authorities have been quite efficient in processing applications, at least in the major cities and usually once we have provided them with all of the requested information in the exact format they need, they usually provide a response within 2-3 weeks. It is getting to that point that takes so much time.
Generic WFOE Formation – Roadmap
A. Name Approval Application
1. WFOE Investor(s): corporate structure chart, authenticated corporate documents, passports and other documents identifying key personnel.
2. Business Scope: define scope of business.
3. Registered Capital: determine amount of capital to be invested, pursuant to financial projections.
4. Total Investment Amount: determine maximum investment amount (capital + investor loans).
5. Capital Contribution Timeframe: default is within 30 years.
6. Proposed Chinese Names for WFOE: at least 6-10 choices.
7. WFOE Address: dependent on lease/office space.
8. Name Approval Application Form: prepared by your lawyers, signed by client.
It is necessary that you select a Chinese language name for your WFOE. In choosing the name, please note the following:
1. In China, only the Chinese language name has any legal status; as a legal matter, the English is not relevant. This means you can use any English language name you want.
2. Chinese company names follow this rigid structure: [City of formation] Company Name [business type] [Company Ltd.]
So, an English equivalent of a typical Chinese company name would be: Shenzhen ABC Consulting Co. Ltd.
The elements in [] square brackets are fixed by the local government. This means the only thing we need determine now is the Company Name. Since as you can see, company names can get rather long, it is usually best to limit the Company Name part to 3 or 4 Chinese characters at most.
3. The company name must be different than any other company registered in your same kind of business. It is often surprising how many good names are already taken. For this reason, the local authorities require we submit AT LEAST five alternative names and they (and we) prefer ten alternatives if possible.
4. There are two approaches to selecting a Chinese company name. You can pick a descriptive name or you can pick a name that has no meaning but is intended to reproduce only the sound of the parent company name. When descriptive names are used, investors often make the mistake of choosing names that are too long. As noted above, the name should be limited to three or at most four Chinese characters.
5. You will need a native speaker of Chinese to assist you in choosing the names. Some companies simply work this out with their current staff. Some companies hire a public relations or a branding company to work with them on the issue. Note that your Chinese company name will become your identity, so a careful choice is advised. We can give you names of some branding companies with whom we have worked on China matters.
6. When our clients have chosen their names our China lawyers check to see if there are any obvious conflicts with existing names. We then work with the local government to devise the full Chinese name to be used on the WFOE registration papers.
B. During Formation Process
1. Select accountant.
2. Select bank.
3. Draft labor and employment documents: employment agreements, WFOE rules and regulations, non-compete agreements, confidentiality agreements, etc.
C. Post-Formation
1. Open bank account.
2. Carve chops.
3. Open social insurance accounts and begin tax reporting.
4. Other post-formation activity as relevant.
For more on what it takes to form a China WFOE, check out the following:
