The biggest dilemma for investors looking forward to going offshore is, “do I close the company back home or open an entirely new one in China?” For about three decades, China has become the new go-to investment destination for foreign investors, and it is easy to see why – a jurisdiction that is overflowing with potential. Keep reading as we take a closer look at China company formation and demonstrate how to solve this dilemma.
To Keep or Close the Parent Company: Which is the Better Option?
The decision to keep or close the parent company is entirely dependent on you as an investor. So, here are the main scenarios and how to go about them.
If your home company is performing well, it will not be a good idea to close it. Indeed, it can be one of the important sources of capital for the new firm you are registering in China. For example, if the new company is faced with a financial shortfall, perhaps because clients have not paid or a tender has matured earlier than expected, the parent company can be a good source of funds instead of borrowing from lenders.
Another scenario is when the home company has been underperforming, and there are no good signs of recovery. For example, if your company was knocked down by the measures used to contain the COVID-19 pandemic and there is a risk of sinking further, it might be a good idea to close and open a new one in China.
If you are able to keep the home company running profitably when incorporating your company in China, it can be a good idea. However, make sure to weight all the available options.
Understand the Benefit of Expanding to China
Now that you know when to keep or close the home company, the next step is checking the main benefits of China company formation.
The most notable of these is government support for businesses. Since 1978 when the Chinese administration started the economic reforms, it has been a race to craft better policies to make businesses excel. F
or example, the country has lowered the taxes for companies that want to come to China and operate in free trade areas. Other benefits of expanding to China include:
- The abundance of Skilled Talents: The Chinese professionals are both competent and talented. Every year, the Chinese Universities produce millions of skilled staff and encourage internationals to come back home. These are the skills you need for high productivity and success.
- Growth Opportunities: When you incorporate a company in China, it only marks the beginning of the journey to success. The lovely thing about China is that every niche presents awesome growth opportunities for you. For example, you can easily grow your manufacturing business by supplying the finished products in China or exporting them abroad.
- Stability: You have probably seen massive demonstrations in different countries across the globe because of varying reasons, but these instances are rare in China. The social and economic stability experienced in China is very helpful for both short and long-term planning.
The Main Types of Companies Allowed in China
To form a business in China, you need to start by determining the nature of the company. There are three main types of companies that you can form in China, a WFOE, Joint venture, and representative office.
- WFOE: This is a company registered in China and 100% owned by foreigners. It is the most preferred type of company.
- Joint Venture (JV): As the name suggests, this type of company requires you to enter into a partnership with a local Chinese.
- Representative Office (RO): This company is an extension of the home enterprise. It is only allowed to do a small range of non-profit activities, such as marketing.
Once you select the preferred type of company, the next step is registering it. Here, you need to be smart by working with professionals because trying to do it on your own can be challenging.
Most people find China company formation on their own challenging because it involves dealing with multiple offices and a long list of documents. However, experts will make the process easy, fast, and convenient for you. The process will also be cheap.