Wholly Foreign Owned Enterprise (“WFOE”)
A WFOE organized as a limited liability company generally is a desirable investment vehicle for foreign investors, provided the participation of a Chinese partner is not required under the investment regulations. The limited liability company offers foreign investors sole control of the business operations and avoids lengthy negotiations with a Chinese partner, as in the case of an EJV or CJV.
Previously, there was minimum capital requirement under the company law, including the general minimum capital requirement to establish a WFOE of CNY 30,000 (or CNY 100,000 if there is only one shareholder). Following the release of the new company law in 2013, which took effect on 1 March 2014, these requirements were eliminated, except for specified industries, such as banking, insurance, etc. Capital may be contributed in cash or in kind, although in-kind capital contributions are subject to valuation. The revised company law also abolished the requirement for a minimum 30% cash contribution in the registered capital, as well as other requirements in terms of the capital contribution deadline and capital verification, suggesting a more open and relaxed environment for the set up and operation of businesses.
A WFOE must establish a board of directors or a managing director for management structure. For corporate governance purposes, the company must have an independent supervisor (similar to a nonexecutive director in western countries).
A detailed management structure must be set out in the articles of association (including the duties and limits of authority of the legal representative, chief accountant, general manager, etc.). The articles of association must specify procedures for termination and liquidation and for amending the articles.
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