7 Basics For Starting A China WFOE

If you've gotten all of your ducks in a row on these seven issues, you'll be well on your way to starting a business in China.

Starting a business in China usually means forming a Wholly Foreign Owned (Subsidiary) Entity or WFOE. Forming and getting a China WFOE up and running involves more than simply securing Chinese government approval for the new entity. Forming a new WFOE usually also implicates the following seven issues as well.

1.  Determining whether it makes sense to form a Hong Kong company to own your China WFOE or to form a China Joint Venture instead of a WFOE. Forming a Hong Kong company to own your China entity makes sense more often than not, but it certainly depends on the specific situation. For more on whether it makes sense to use a Hong Kong parent company, check out How To Form A China WFOE: Hong Kong Parent Company Is Optional.

2. Ensuring that the lease is suitable for a China WFOE or Joint Venture. If the lease is not suitable, no China company can be formed. For more on this, check out China WFOE Lease Reviews.

3. Ensuring that your business location makes sense. With an office, this is usually relatively easy, but with something like a retail establishment, it can be a big issue. You typically do not want your official business location to be the same as your initial retail location because if you end up wanting to close down your initial retail location, you will then have to deal with the added hassle of needing to secure approvals from the Chinese bureaucracy to change your business location. There are also all sorts of issues that can arise from having a location in one place and your employees in another.

4. Preparing Chinese-language employment documents for all of your employees. This includes mandatory documents such as labor contracts and company rules and regulations, as well as optional documents such as confidentiality agreements, non-compete agreements, and educational reimbursement agreements. For more on China employment law check out China Employment Law: It’s Complicated And It’s Localized.

5. Ensuring that you have maximized your IP protection in China. This typically begins with figuring out what you can and should protect in China by way of trade secrets, trademarks, copyrights, and patents, and then drafting appropriate contracts and provisions with your vendors, suppliers, counter-parties, and employees to protect that IP. This also usually involves figuring out what IP you can and should register in China as a trademark, copyright, or patent. For more on China IP protection, check out How to Protect Your IP From China: It Is Is Possible.

6. Opening a China bank account and retaining a China accountant and a China bookkeeper. You will typically want to work with a China-savvy accountant early on to determine your appropriate capital requirements for your China WFOE and on any transfer pricing issues you may have.

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7. Ensuring that your China compliance house is in order. This includes setting up a China compliance program to protect against potential China and U.S. anti-corruption problems. Compliance is of particular concern to SMEs, who typically name the parent company’s CEO as the WFOE’s legal representative, and thereby expose the CEO to criminal liability in China for employees’ misdeeds. For more on China compliance, check out China Compliance: Are You Ready For War With Your Own Staff?

If you’ve gotten all of your ducks in a row on these seven issues, you’ll be well on your way to starting a business in China.


Dan Harris is a founding member of Harris Moure, an international law firm with lawyers in Seattle, Chicago, Beijing, and Qingdao. He is also a co-editor of the China Law Blog. You can reach him by email at firm@harrismoure.com.

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