top of page

What foreign investors must know before setting up a company in China

Updated: Apr 30, 2021

Foreign investors may set up a limited liability company in China, either solely or jointly with other local investors. They may also acquire shares of domestic enterprises in China.

Here below there is a quick guide on what you need to know before investing.

Investment sectors and business scope

Some investment sectors included in the Negative list are subject to restrictions for foreign investors. The latest version of Negative list was released in December 2020.

Prohibited Sectors: foreign investments are not allowed. The prohibited sectors include: rare earth, tobacco, traditional Chinese medicine, legal service, mapping, news, publication, films and television, auction of cultural relics, etc.

Restricted Sectors: foreign investors shall comply with the requirements for equity percentages, senior officers and other special administrative measures specified in the Negative List, and shall obtain approval from the Chinese government (Security Review). The restricted sectors include automotive (except for new energy vehicles), nuclear power plants, air transportation, civil airports, telecommunications, etc.

In order to circumvent the application of the Negative List, many foreign investors adopt the VIE structure, which is a Chinese domestic company indirected controlled by foreign investors through contracts. This practice is very common for Technology, Media & Telecommunications enterprises in China.

Company Name

The company Name shall be in Chinese characters and include 4 elements: (1) the administrative regions where it is located; (2) trade name; (3) industry or sector involved; (4) form of organization.

For example, the company, Yiwu Concord Imp and Exp Co Ltd (义乌协和进出口有限公司), has the said four elements.

Registered Capital

Generally, there is no statutory minimum amount of registered capital for setting up a limited liability company in China, except for some special industries such as:

banking, securities, funds, investment, insurance, publishing, construction, tourism, telecommunications, international freight or air transport, etc.

Shareholders shall not be required to pay up the subscribed capital when the company is incorporated. Articles of Association may specify the term for making a capital contribution, which can be made in currency or in transferable physical objects, intellectual property and land use rights.

Corporate governance

In China, the corporate governance structure consists of shareholders, directors, supervisors, managers, and legal representatives, who can be also foreign citizens not resident in China for sectors excluded by the Negative list.

(1) Shareholders

For limited liability company, the number of shareholders should be less than 50, while for joint-stock limited company, the number of shareholders should be in the range from 2 to 200, and more than half of which should have domiciles in China.

(2) Board of directors

The company can have one or two directors or a board of directors with 3-13 people, in charge up to 3 years, re-eligible.

(3) Supervisor

The company can have one or two supervisors or a board of supervisors with more than three supervisors, in charge up to 3 years, re-eligible.

(4) Manager

The company can have one or more manager(s) responsible for the board of directors or single activities.

(5) Legal representative

The company must designate a person as its legal representative, who can be the chairman of the board, the sole director or the manager. The legal representative may be required to assume applicable personal liabilities.

Avv. Lifang Dong e Avv. Chiara Civitelli

This article is not a legal advice, but it has an informative function only. For personalized legal advice, contact us by e-mail or by phone +39 06 916505710.

© Dong & Partners International Law Firm, All rights reserved

25 views0 comments


bottom of page