HOW CAN INDIANS START A BUSINESS IN CHINA? WHAT ARE THE LEGAL REQUIREMENTS FOR THE SAME?

Before starting a business in any country, it is important for a businessman to scrutinize the profits and losses along with the laws and policies applicable in that country regarding ownership, taxation and other business activities. China, with its growing population and consumer affluence gives businessmen a huge motive to start their business in China.

HOW CAN INDIANS START A BUSINESS IN CHINA? WHAT ARE THE LEGAL REQUIREMENTS FOR THE SAME?

Before starting a business in any country, it is important for a businessman to scrutinize the profits and losses along with the laws and policies applicable in that country regarding ownership, taxation and other business activities. China, with its growing population and consumer affluence gives businessmen a huge motive to start their business in China. It is a fantasy market for many because of its largest unified economic space. It is a well-known fact that chinese products occupy a huge market in India because of its cost efficiency. Indian imports from China stood at  US$70.32 while, Indian exports to China stood at US$16.75 in the year 2018-19. Hence, starting a business in China can prove to be beneficial keeping in mind the growing market and stability. However, unlike usual startups, starting a business in China can be difficult because of the strict government policies. The process of incorporating the business with a proper legal structure can consume a lot of time and money.

A business establishment in China by an Indian or any foreigner is possible only in three business structures, namely- WFOEs, Joint Ventures and Representative Offices. WFOEs or Wholly Foreign Owned Enterprises provide 100% ownership to the foregin parties with very limited liabilities. They can employ staff directly within China and can protect their own Intellectual Property. However, there are certain questions that need to be answered. How to figure out which business structure is most suitable? How to protect the Intellectual Property? How to hire and protect employees? What are the legal requirements to start the business?

A list of some basic requirements has been given below.

 

  • Suitable Business Structure: When setting up a business in China, it is extremely important to understand the PRC regulations due to the links between the business and political environment. The continuous change in trends and environment have to be kept in mind while choosing a suitable business structure. To avoid further complications regarding the Chinese business laws, a proper study  of the scope of business is important.

 

  • Hiring an agent: It is very important to hire an agent to know about the business laws, FTZs, and other steps involved in the process. A huge investment requires proper knowledge and research which can be achieved by hiring an experienced service provider.

 

  • Legal Structure: A legal structure like the WFOEs are most suitable for foreigners to start a business in China because of their flexibility. A minimum registered capital has to be decided once the legal structure has been selected. It is the total amount of capital that has to be contributed by the shareholder.

 

  • Opening a bank account: It is mandatory to open a bank account, especially if the business is registered as a WFOE. While setting up a bank account, certain legal documents are required like business registration proof, company ownership details, valid ID proof of legal representatives, a list of directors’ names and a recorded state approval of the business venture. Opening a bank account as a foreigner is difficult in China which gives the businessman another reason to hire an experienced service provider.

 

  • Trademark Registration: China does not accept a trademark registered in any other country. It is a first-to-file country, where any company who files for a particular trademark first, gets it legally. After ensuring that the trademark is available, it has to be registered immediately. Once the registration is done, the Chinese trademarks filings should be monitored frequently to check trademarks that are too similar. The registration with Chinese customs can prevent import and export of counterfeit products. As long as all the preventive steps are taken, the Intellectual Property is safe.

 

  • Hiring employees: Once the account has been made, a place has been taken on lease and the Intellectual Properties are safe, the company has to hire employees. Human resource consultants and headhunting agencies in China help in hiring managers. After trusted managers have been hired on the basis of Employment Agreements, they can help in the process of hiring other staff. Although, an employment agreement is required for all.

 

The list of things that should be known before starting a business in China is dynamic. Infact, someone who is already in the middle of his operations in China will still have future developments in business laws to study about.

 

The picture above shows the Intellectual Property Strategy of China. It clearly indicates the importance of the legal aspects of the Chinese market, ie. protection of patents, trademarks and copyright followed by other practical and technical issues. So we can conclude that, to enter the Chinese market or to start a business in China, the Intellectual Property plays a very significant role and must be given utmost importance for a successful business in a country like China.

-Ridhika Kapoor.