Published: April 8, 2020
Category: Business/Corporate Matters
By: David Cui
In China, joint venture is a common corporate structure: many of the most famous companies, such as McDonald's, Starbucks and didi Travel, have adopted the joint venture (JV) corporate structure in China.
For foreign investors, there are two different reasons for setting up a joint venture with China.
First, it allows foreign companies to invest in industries listed as "restricted" on China's negative list.
Second, it enables foreign companies to take advantage of the local know-how, sales channels and distribution networks of Chinese partners, which is conducive to the initial operation and expansion of the company.
In the context of China's economic slowdown and increasingly fierce market competition, the establishment of joint ventures may be a strategic investment tool to enter the Chinese market or expand to China. It can allow investors to obtain local networks and resources while reducing risks. Enterprises must be familiar with the new foreign investment law to ensure compliance with China's latest regulations on enterprise establishment and due diligence.
Joint venture in China
A joint venture is a limited liability company composed of foreign investors and Chinese companies.
Once established, the joint venture will become a new legal entity, and the liability of shareholders is limited to the assets they bring to the enterprise. The liability is limited to the joint venture, excluding the parent company.
Types of joint ventures before the implementation of the new foreign investment law
Equity Joint Venture (EJV): This is a limited liability company with profits and losses distributed in proportion to their respective equity interests.
Cooperative Joint Venture (CJV): This is a joint venture structure that provides investors with more flexibility. It can operate as a limited liability company or an unincorporated entity. In addition, unlike joint ventures, profits, risks and control rights are not allocated in proportion to their equity. Instead, they can be negotiated in a contractual agreement.
Joint venture structure under the new Foreign Investment Law
According to the new foreign investment law, which came into effect on January 1, 2020, the distinction between the structure of joint ventures and cooperative enterprises will be cancelled.
Article 42 of the new law will repeal the Sino-Foreign Joint Venture Law and the Sino-Foreign Cooperative Joint Venture Law.
Instead, foreign-invested enterprises in the form of EJV or CJV need to change their governance structure into a three-tier structure in accordance with the company law, namely, the board of shareholders, the board of directors and the manager.
The existing joint venture will have a five-year transition period.
The foreign investment law will change many structural requirements of joint ventures, such as shareholding ratio, organizational form and regulations surrounding the internal governance of joint ventures.
Looking for suitable partners in China
Before setting up a joint venture in China, foreign investors need to find one or more local partners. It is important to conduct thorough due diligence on the prospective joint venture partners.
Although most of the due diligence is best left to trained professionals, investors can complete the following basic steps by themselves:
Check the business license and operation status of partners: this can provide valuable information for investors, such as who has the right to make certain decisions in the company, what is the registered capital, the validity period of business license, address, etc.
Check the land use right of the partner: if the Chinese side provides the land, it is important to ensure that it actually owns the land and evaluates it correctly. Attention should be paid to the possible illegal land acquisition, especially when the joint venture partner intends to use the land as part of its joint venture investment.
Checking financial reports: it is very important to ensure that the financial information in the company's books accurately reflects the company's financial situation, as China's tax authorities often conduct more stringent scrutiny of foreign enterprises. In case of doubt, a qualified asset appraisal company can be employed to issue an asset appraisal report.
Precautions before establishment
A successful joint venture can bring many opportunities to the enterprise. It can help foreign companies identify the right market, navigate often complex local regulations, monitor and protect intellectual property rights, and leverage local talent.
For those enterprises that wish to adopt the joint venture structure in China, several preliminary issues need to be considered, such as:
Is your enterprise in an industry that "encourages", "permits", "restricts" or "prohibits" foreign investment? This will determine whether you can really create a joint venture and the incentives available.
What is your business scope? This will make it clearer how your business scope adapts to a broader joint venture structure.
What is your "articles of association"? This refers to structural issues such as the structure of the company's board of directors, return of profits, trade unions, mergers and acquisitions, and liquidation.
How much should your registered capital and total investment (cash, in kind, loan, etc.) be? This is a very important consideration and needs to be managed according to your business model.
If you are a manufacturing entity, what proportion of your production is used for export and domestic sales? This is a key issue with significant tax and operational implications.
What are your profit distribution and liabilities? This will complicate the problems of joint ventures.
What tax do you need to pay? These may include business tax, foreign enterprise income tax, value added tax, withholding tax, personal income tax and customs duties.
Where should your company be? It will depend on your specific business and industry needs. It is necessary to compare several options, including development zones (if applicable), as each option has different costs and benefits.
What is the internal management structure like? This includes asking who will be the leader in the day-to-day operations of the business? Who will be responsible for sales or export sales? Another key consideration is to determine whether it is necessary to allow one party to unilaterally increase the registered capital of the enterprise, thereby diluting the shares of the other party.
What are the intangible considerations for running a successful joint venture in China? It is important to consider the business culture, customs and priorities of the local government.
Companies should seek professional advice to ensure that necessary due diligence and procedural requirements are carried out prior to the establishment of a joint venture and that the company structure is in line with its broader corporate strategy. This will protect foreign investors from any unnecessary legal risks.
在中国成立合资企业
在中国，合资企业是一种常用的公司结构：许多最知名的公司，如麦当劳、星巴克，以及滴滴出行，都在中国采用了合资企业（JV）的公司结构。
对于外国投资者来说，与中方成立合资公司有两个不同的原因。
首先，它允许外国企业投资中国负面清单中被列为“限制”的行业。
第二，它可以使外国公司利用中国合作伙伴在当地的技术诀窍、销售渠道和分销网络，这有助于公司的初步运营和扩张。
在中国经济放缓和市场竞争日益激烈的情况下，成立合资企业可能是进入中国市场或向中国扩张的一种战略投资工具，它可以让投资者在获得本地网络和资源的同时降低风险。企业必须熟悉新的《外商投资法》，以确保遵守中国最新的企业设立和尽职调查条例。
在中国开办合资企业
合营企业是由外国投资者和中国公司组成的有限责任公司。
一旦成立，合资企业就成为一个新的法律实体，股东的责任仅限于他们为企业带来的资产。该责任仅限于合资企业，不包括母公司。
新《外商投资法》实施前合资企业的类型
合资企业（EJV）：这是一家有限责任公司，利润和亏损按双方各自的股权比例分配。
合作企业（CJV）：这是一种为投资者提供更多灵活性的合资企业结构。它可以作为有限责任公司或非法人实体经营。此外，与合资企业不同的是，利润、风险和控制权并不是按其股权比例分配的。相反，它们可以在合同协议中协商。
新外商投资法下的合资企业结构
根据2020年1月1日生效的新《外商投资法》，合资企业和合作企业结构之间的区别将被取消。
新法第四十二条将废止《中外合资经营企业法》和《中外合作经营企业法》。
取而代之的是，以合资企业或合营企业形式存在的外商投资企业需要根据《公司法》将其治理结构改为三级结构——设立股东会、董事会和经理。
现有合资公司将有五年的过渡期。
《外商投资法》将改变合资企业的许多结构要求，如持股比例、组织形式以及围绕合资企业内部治理的法规。
在中国寻找合适的合作伙伴
在中国成立合资企业之前，外国投资者需要找到一个或多个当地合作伙伴。
重要的是对预期的合资伙伴进行彻底的尽职调查。
虽然大部分尽职调查最好留给训练有素的专业人士进行，但投资者可以自己完成以下几个基本步骤：
检查合伙人的营业执照和经营状况：这可以为投资者提供有价值的信息，如谁有权在公司作出某些决定，注册资本是什么，营业执照的有效期，地址等。
检查合作伙伴的土地使用权：如果中方提供土地，重要的是要确保其实际拥有该土地的所有权并正确估价。要注意可能存在的非法征地问题，特别是合资伙伴打算将土地作为其合资出资的一部分时需要特别小心。
检查财务报告：确保公司账簿中的财务信息准确反映公司财务状况非常重要，因为中国税务机关经常对外国企业进行更严格的审查。如有疑问，可以聘请有资质的资产评估公司出具资产评估报告。
设立前注意事项
一个成功的合资企业可以给企业带来很多机会。它可以帮助外国公司确定正确的市场，驾驭往往复杂的地方法规，监督和保护知识产权，并利用当地人才。
对于希望在中国采用合资企业结构的企业，有几个初步问题需要考虑，例如：
您的企业是“鼓励”、“允许”、“限制”还是“禁止”外商投资的行业？这将决定你是否真的可以创建一个合资企业，以及可用的激励措施。
你们的经营范围是什么？这将使您的业务范围如何适应更广泛的合资企业结构更加清晰。
你的“公司章程”是什么？这是指结构性问题，如公司董事会结构、利润返还、工会、并购和清算。
你的注册资本和总投资（现金、实物、贷款等）应该是多少？这是一个非常重要的考虑因素，需要根据您的业务模式进行管理。
如果你是一个制造实体，你的生产有多大比例用于出口和内销？这是一个具有重大税务和运营影响的关键问题。
你们的利润分配和负债是多少？这会使合资企业的问题复杂化。
你需要交什么税？这些可能包括营业税、外国企业所得税、增值税、预扣税、个人所得税和关税。
你的公司应该在哪里？这将取决于您的具体业务和行业需求。有必要比较几种选择，包括开发区（如果适用），因为每种选择都有不同的成本和收益。
内部管理结构是什么样的？这包括询问谁将是企业日常运营的领导方？谁将负责销售或出口销售？另一个关键考虑因素是确定是否有必要允许一方单方面增加企业的注册资本，从而稀释另一方的股份。
在中国经营一家成功的合资企业有哪些无形的考虑？重要的是要考虑到商业文化，风俗习惯和当地政府的生意重点。
企业应寻求专业意见，以确保在成立合资公司之前，开展必要的尽职调查检查和符合程序要求，公司结构符合其更广泛的公司战略。这将保护外国投资者免受任何不必要的法律风险。
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