Legal consulting in China
Over the past two decades, the Chinese economy has experienced remarkable growth, attracting a diverse array of foreign investors and multinational corporations seeking to establish or expand their operations within the country. In 2022, China's GDP reached a staggering $17.95 trillion, constituting 18.5% of global GDP and solidifying its position as the world's second-largest economy, trailing only the United States.

China's unwavering commitment to innovation and technology development has placed it at the forefront of cutting-edge fields, including artificial intelligence, robotics, and other advanced technologies. Collectively, these factors position the People's Republic of China (PRC) as a critical driver of the global economy, reshaping global business dynamics by introducing new products, services, and business models.

Effective January 1, 2023, the "List of Encouraged Industries for Foreign Investment" has come into effect, further enhancing opportunities for international business expansion within China.

Foreign companies must navigate numerous regulations and requirements before establishing a presence in China. Chinese business culture differs from Western business practices, emphasizing the importance of personal relationships with Chinese partners. Understanding these subtleties in mentality is critical to establishing a successful business and gaining the support of local partners.

Legal support is essential for foreign companies to navigate the complex landscape of Chinese business and avoid legal complications. Legal services in China cover a wide range of areas when working with foreign clients, including matters related to international law (contracts), company registration and dissolution, protecting intellectual property rights, and conducting legal due diligence, among others.

Legal support for investment activities in China is essential to ensure a well-informed and legally compliant business registration process, giving investors confidence that all regulatory and legal requirements have been carefully met when entering the Chinese market. Our experienced legal professionals provide comprehensive legal solutions to protect investors' rights when doing business in China.

Corporate law consulting

China, with its vast domestic market and strategic location in Asia, stands as one of the most important investment destinations in the region. As a rapidly growing and large economy, China is continually updating its laws and regulations. To navigate the complex legal landscape and avoid legal missteps in the execution of investment projects in China, it is crucial to engage the services of knowledgeable professionals.

Our team of experts is well-equipped to provide legal advice and support throughout the entire lifecycle of your business venture. Our China business services include:

  • Legal assistance with company registration: we provide advice on entering the Chinese market and selecting the most appropriate corporate structure for your business. Our assistance includes drafting a comprehensive package of registration documents, overseeing the filing process with the relevant authorities, and facilitating the acquisition of licenses and other necessary approvals.
  • Corporate governance services: we assist in the development and implementation of a corporate governance framework tailored to the specific needs of your business. This includes drafting corporate agreements and negotiating with counterparties to finalize them.
  • Legal business audit: Our legal experts conduct comprehensive audits of projects involving foreign capital investment. Additionally, we assist in verifying the validity of transactions before entering into contracts in China.
  • Transaction support: we provide comprehensive support for a range of corporate transactions, including mergers, acquisitions, and transformations.
  • Business succession planning: we assist in developing a strategy for the seamless transfer of the business to heirs or new owners.
  • Legal entity restructuring assistance: Whether it involves reorganization activities such as stock transfers, changes in business size, or the dissolution of legal entities, our experts are equipped to guide you through the process.
  • International dispute resolution: in the event of disputes related to corporate law, we offer assistance in resolving these matters through arbitration and general jurisdiction courts.

By engaging our legal services in China, you ensure that you have a team of seasoned professionals at your side, equipped to navigate the complex legal landscape and protect your business interests.

Legal support for doing business in China

China's rapid economic growth has catapulted it to the status of a global economic powerhouse, attracting the attention of business professionals seeking new markets for their investment ventures. Several key factors have contributed to China's economic success. Chief among them is its colossal consumer market, with a population of over 1.4 billion people. In addition, the Chinese government's strategic emphasis on infrastructure development, technological innovation, and governance reform has been instrumental in fueling the country's economic growth.

China's Foreign Investment Law 2020 is a key piece of legislation. This law serves to promote and regulate foreign investment in China, creating a transparent business environment for international investors. While China offers a wealth of investment opportunities, it is imperative to conduct comprehensive market research and gain a clear understanding of the local regulations governing business activities. Working with legal professionals who specialize in China's investment landscape is critical to maximizing your chances of success when venturing into the Chinese market.

If you are considering setting up a business in China, our team can advise you on the most appropriate corporate structures to meet your business objectives. We provide comprehensive support for investment activities in China. Here are some basic approaches for foreign investors to enter the Chinese market.

  1. Registration of a 100% foreign-owned entity (WFOE). In China, this involves forming a legal entity controlled by foreign investors. This entity, also known as a WFOE, limits the liability of founders to the extent of their capital contribution. A WFOE can conduct any lawful business activity in China.
  2. The establishment of a partnership agreement. The establishment of a joint venture in China requires executing a JVA with a Chinese partner. On the other hand, CJV involves establishing a partnership based on a mutually agreed-upon contract. In China, there are two main types of JVAs: equity joint venture companies, or EJVs, and contractual joint ventures, or CJVs.
    1. EJV entails creating a distinct legal entity, and the partners' rights, obligations, and interactions with other entities in a mutual JV follow the guidelines of limited liability companies. In this case, participant relations are governed by a mutually agreed-upon agreement documented in the Memorandum of Association.
    2. The main difference between these types of ventures lies in their governing rules and relationships with other entities.
  3. To expand an existing business in China, investors may need to register a branch or representative office in the PRC. A branch is a component of the parent organization and lacks independent legal standing. Therefore, it cannot autonomously decide on its operations, and all decisions are made by the foreign entity. The parent company bears liability for the branch's debts. Chinese legal norms, such as registration, reporting, and licensing duties, are applicable to branches.
  4. Another option for foreign investors and large corporations planning to enter the Chinese market is to establish a representative office in China. This type of business entity is prohibited from conducting commercial activities within the country but is suitable for performing market analysis, forming partnerships, and launching marketing campaigns to attract clients.

Requirements for registering a WFOE in China

To establish a WFOE in China, the following requirements must be met.

  • At least 1 founder (foreign resident).
  • At least 5 variations of the company name must be verified with the registry before registration.
  • No requirements for initial registered capital.
  • Actual office in China.
  • Compliance requirements including maintaining proper accounting records, filing tax returns and undergoing annual audits.

There are three stages to registering a wholly foreign-owned enterprise in China:

Step 1:

pre-approval by the State Administration of Foreign Investment (MOFCOM). At this stage, an application for pre-approval of the enterprise is submitted, along with the necessary documents such as a business plan and investment information.

Step 2:

registration with the Administration of Industry and Commerce (AIC). At this stage, all required documents, including the Certificate of Incorporation and Articles of Association, must be submitted.

Step 3:

post-registration steps, such as registering with tax and social security authorities and opening a business account in a Chinese bank.

It's important to note that each stage has specific documents, deadlines and formalities, so legal advice is essential to ensuring compliance with all Chinese legal requirements. The registration process for a Chinese company typically takes about 2 months.

Another option is to purchase a ready-made company in China. These are legal entities that have already been registered with the government but have not engaged in any commercial activities. Ready-made companies come with all the necessary documents, including a certificate of registration and articles of association. You can check the availability of such companies or request legal assistance for such transactions in China from YB Case's business consultants.

Transactional lawyers: guiding business success in China

Navigating complex transactional processes can be a daunting task, underscoring the essential role of skilled transactional lawyers. These legal professionals specialize in providing invaluable support for a wide range of transactions, from mergers and acquisitions to investments and more. They serve as trusted advisors to businesses, helping both entrepreneurs and corporations achieve their goals.

It's worth noting that in China's unique business landscape, the expertise of transactional lawyers is equally important to companies of all sizes at every stage of their journey. The intricate nuances of Chinese culture and business practices are integral to the expertise of Chinese lawyers. Their insight extends beyond the realm of national laws to include an in-depth understanding of localized regulations, making them adept at providing expert legal counsel for international commercial transactions.

We offer specialized M&A services tailored to the Chinese market needs and the China's foreign acquisition regulations. Our firm is prepared to advocate on behalf of our clients before the regulatory authorities that oversee M&A activities in China.

We've accumulated a wealth of experience in foreign investment in various industries. Our team's comprehensive China legal services include

  • Guidance on business formation, transformation and structural optimization.
  • Comprehensive business due diligence to ensure informed decisions.
  • Precise drafting and diligent review of transaction documents.
  • Strategic advice on essential permits and approvals.
  • Tailored legal opinions to meet client needs and regulatory requirements.
  • Robust advice on protecting intellectual property interests in China.
  • Expert assistance in managing reorganizations and dissolutions of foreign-invested enterprises.
  • Assistance in effectively resolving disputes related to mergers and reorganizations.
  • Additional customized legal support for foreign-invested enterprises.
Legal professionals play a pivotal role in the corporate arena, helping companies not only to achieve their goals, but also to devise meticulous strategies to effectively mitigate the risks inherent in complex legal transactions.

Obtaining a corporate bank account in China

Securing a Chinese bank account for non-resident individuals or foreign-incorporated companies can be a daunting and complicated process. YB Case advisors provide assistance in opening accounts with the prominent banks in China. The intricacies involved in opening accounts with Chinese banks for such entities are multifaceted and include several challenges, including

  • Government regulation: Chinese banks operate under strict government regulation and are subject to extensive government oversight.
  • Personal presence requirement: an essential requirement for initiating the process of opening a bank account in China is the mandatory physical presence of a company representative. This presence is non-negotiable.
  • Documentary verification: companies with foreign founders must compile and submit an extensive set of documents to verify the identity of the company's management and assess the company's financial standing. Banks may request detailed information about the source of funds to be deposited into the account, the nature of the company's activities, and prospective business partners.
  • Initial deposit requirement: some banks may require an initial deposit for the account, the amount of which varies depending on the bank and the type of account. These minimum deposit requirements can often be substantial.
  • Industry-specific screening: certain industries, especially those prioritized by the government, are subject to rigorous regulatory scrutiny. This adds to the complexity of the account opening process for companies operating in these sectors.

Crucially, the timeframe for opening a foreign-invested Chinese corporate bank account can vary considerably, from a few weeks to several months, depending on the particular circumstances and the specific banking institution involved. This underscores the importance of seeking professional legal advice and assistance to effectively navigate this complex process.

Comprehensive business due diligence: a necessity for success in the Chinese market

As companies seek to expand their operations in the vast and complicated Chinese market, conducting thorough business due diligence becomes an imperative step. China's unique complexities require a careful evaluation of potential investors to determine their credibility and growth prospects.

Business due diligence involves the systematic collection and analysis of pertinent information about a company or investment. In an era characterized by cyberspace, financial technology, and other innovative fields, business due diligence takes on special significance as it encompasses the valuation of intellectual property and other critical issues.

Several compelling reasons underscore the importance of business due diligence in today's Chinese business environment:

  1. Increasing business complexity: ongoing technological advances introduce new complexities that present both risks and opportunities for companies.
  2. Increased legal risks: the rapid development of technologies is leading to an increase in legal risks. These include risks related to intellectual property infringement, data breaches, and more.
  3. Intellectual property protection: intellectual property is a cornerstone asset for many companies. Legal valuation is critical to protecting and preserving these invaluable assets.

Legal due diligence includes the following key aspects

  • Assessment of financial health: examining the financial health of the target company.
  • Legal status review: ensuring that the company's legal status is sound.
  • Commercial activity analysis: evaluating the operational aspects of the business.
  • Management assessment: assess the competence and effectiveness of the company's management.
  • Intellectual property evaluation: evaluate the company's intellectual property assets.

Tangible benefits that legal due diligence provides:

  1. Error mitigation helps avoid costly mistakes associated with market expansion in China.
  2. By identifying and addressing potential risks, it minimizes the uncertainties associated with investing in a Chinese business.
  3. Provides stakeholders with the information they need to make informed investment decisions.

Due diligence can be conducted either before or after a transaction. The results of a due diligence investigation are presented to the client in the form of advisory insights, enabling the client to make informed decisions about investing in Chinese companies.

The firm's advisors have in-depth knowledge of Chinese laws and regulations that may affect transactions. They ensure that all parties involved comply with the necessary legal requirements. Our China services include:

  • Liability analysis assistance: this includes negotiating with the opposing party's legal representatives to secure fair terms.
  • Structuring legal transactions: providing guidance on structuring transactions from a legal perspective.
  • Interpreting legal documents: providing assistance in understanding legal documents that are integral to transactions with Chinese counterparties.
Business due diligence in China is not just a prudent measure; it is an indispensable cornerstone for achieving success and minimizing risk in a dynamic and complex market environment.

Assistance in drafting robust commercial contracts in China

Navigating the ever-evolving business landscape in China requires a thorough understanding of the legal intricacies involved in drafting commercial contracts. Contracts serve as the cornerstone for conducting business activities, allowing parties to a transaction to define their rights and obligations while establishing legally enforceable commitments. In China, the 1999 PRC Contract Law is the primary legislation governing the formation, execution, and termination of contracts. This law contains general provisions applicable to all contracts as well as specific provisions for certain types of contracts, such as investment agreements and sale and purchase agreements.

For companies doing business in China, an understanding of the key provisions of the PRC Contract Law is essential.

  • In most cases, Chinese contracts must be in writing.
  • Contracts must explicitly state the rights and obligations of the parties.
  • Parties are required to perform their contractual obligations in good faith.
  • Termination can be by agreement or unilaterally for legal reasons.

Chinese contract law often allows for different interpretations and mutual assumptions due to several factors:

  1. The Chinese legal system is based on civil law, which differs from Western systems based on common law. These different approaches can pose challenges for companies doing business in China.
  2. Chinese business culture is often based on personal relationships and mutual understanding, sometimes viewing contracts as broad frameworks rather than rigidly binding documents.
  3. The complexity of the Chinese language can lead to misunderstandings in translation.

To anticipate such challenges, companies should be aware of potential differences between Chinese and Western legal systems and contracts. Proactive measures can help mitigate the risks arising from these differences. A well-drafted contract is critical to avoiding disputes and protecting business interests.

Contract drafting assistance is a comprehensive service that ensures the validity of contracts in accordance with Chinese law. Such services for businesses in China related to contract law include:

  • guidance on contractual aspects;
  • support throughout the life cycle of a contract;
  • comprehensive review of contract terms;
  • advocating the client's interests in discussions with counterparties or partners.

Protecting intellectual property in China: an essential market entry strategy

It is a critical element of any market entry strategy in China. Companies that proactively protect their IP assets can effectively mitigate risks and improve their chances of success in the Chinese market. Unfortunately, many European entrepreneurs tend to underestimate the critical importance of IP protection when entering China.

As China strives to maintain its position as a global innovation leader, the government continues to refine its IP protection framework. Comprehensive IP laws and regulations have been drafted to align the national system with contemporary international standards. In particular, initiatives such as IPKey China. China generally enforces more severe penalties than many European countries.

Investors venturing into the Chinese market are strongly advised to formulate a comprehensive IP protection strategy. Here are some strategic recommendations for protecting a company's IP assets in China:

  1. Maintain well-documented evidence of IP rights, including proof of registration, validity, and ownership.
  2. Include IP protection clauses in employment contracts, such as confidentiality obligations.
  3. Use legal mechanisms to protect IP in joint venture agreements and agreements with counterparties or partners.

We are well positioned to provide our clients with comprehensive IP legal services, including

  • guidance on IP rights regulation in China;
  • assistance with IP rights registration application documentation;
  • drafting license agreements;
  • IP due diligence;
  • representation in IP disputes.

By taking proactive measures to protect their IP assets in the Chinese market, companies can foster an environment of trust and innovation while strengthening their market position and driving sustainable growth.

Supporting the process of liquidating a company in China

The process of liquidating a representative office or foreign-invested company in the PRC is complex and requires attention to various legal intricacies. Failure to comply with the formalities required to cancel a company's registration in China can result in penalties and personal liability for management.

If a company suspends its business activities in China for a consecutive period of six months or more, its business license must be revoked. In addition, the company must pay all outstanding liabilities, including taxes, payroll, and other fees, in addition to ceasing operations.

Engaging the services of a company law specialist is the most prudent course of action, as they can provide up-to-date information on the process and requirements tailored to your specific circumstances. In addition, they can provide competent guidance throughout the entire process of registering a company in China.

As a business service provider, we are ready to provide comprehensive support in the following areas

  • contract termination consultation,
  • preparation of comprehensive liquidation documents,
  • assisting in the closing of bank accounts and facilitating the successful repatriation of funds.

Resolving disputes in China

When doing business in the PRC or dealing with Chinese counterparts, it is not uncommon for disputes to arise. These disputes can arise for various reasons, including failure to fulfill contractual obligations or infringement of intellectual property rights. When partners fail to meet their obligations, experienced lawyers can provide invaluable assistance.

International arbitration serves as a highly effective mechanism for resolving cross-border disputes. To avoid unforeseen complications in the future, it is essential to include an arbitration clause when drafting international agreements. Under Chinese law, the arbitration agreement must contain two fundamental elements:

  1. The clear intention of the parties to resort to arbitration in the event of a dispute,
  2. The identification of the arbitral institution to which the parties intend to submit their dispute.

Our comprehensive services in representing our clients' interests in court and arbitration disputes are particularly relevant for companies involved in foreign economic contracts. We provide the following services in connection with the resolution of international disputes in China:

  1. Negotiating dispute resolution and mediation procedures.
  2. Protecting the rights and interests of foreign companies in Chinese arbitration courts.
  3. Dispute resolution assistance in foreign arbitration courts.

By leveraging our expertise, clients can navigate the complex landscape of dispute resolution in China with confidence, ensuring that their rights are protected and that a reasonable approach is taken to resolving disputes both domestically and internationally.

If you are a foreign investor and need to register a business in China and protect your assets from an investment perspective, we recommend that you contact our legal team. We are always available to discuss the legal services we can provide to support your business in China. Your success is our priority, and we are here to help you every step of the way.
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