The Three Steps for Forming a China WFOE

Our China corporate lawyers are often asked about the steps it takes to form a China WFOE. So often, in fact, that we long along drafted a stock response to that question and we are sharing that response below. Please note that the below is a generic roadmap for WFOE formation and the exact details for forming a WFOE in China will depend on, among other things, the WFOE’s business scope and the city/district in which the WFOE will be formed. Just as a for instance, a trading WFOE will have additional steps relating to import/export procedures.

If all goes smoothly, the overall WFOE formation process usually take 2-5 months. We do not break down the timelines for each of the steps below because those times can greatly vary, usually depending on how long it takes to prepare the financial information, to negotiate the lease, to obtain documents from the landlord, to authenticate relevant documents, and to validate the corporate structure. The MOFCOM authorities have lately been very efficient at processing WFOE applications and once you provide them with all required and requested information in the exact format they need/want, you usually will have a response back in 2-3 weeks. It is the time necessary to get to the point of giving the WFOE authorities all that they need that can take so long.

The below are the three steps necessary for forming a China WFOE.

Generic WFOE Formation

Step One. Name Approval Application

1. WFOE Investor(s): corporate structure chart, authenticated corporate documents, passports and other documents identifying key personnel.
2. Business Scope: define scope of business.
3. Registered Capital: determine amount of capital to be invested, pursuant to financial projections.
4. Total Investment Amount: determine maximum investment amount (capital + investor loans).
5. Capital Contribution Timeframe: default is within 30 years.
6. Proposed Chinese Name(s) for WFOE: at least 6-10 choices.
7. WFOE Address: dependent on lease/office space.
8. Name Approval Application Form: prepared by your lawyers, signed by client.

Step Two. The Formation Process

1. Select accountant.
2. Select bank.
3. Draft labor and employment documents: employment agreements, WFOE rules and regulations, non-compete agreements, confidentiality agreements, etc.

Step Three. Post-Formation

1. Open bank account.
2. Carve chops.
3. Open social insurance accounts and begin tax reporting.
4. Other post-formation activity as relevant.

For more on the issues you will face in forming your WFOE in China, check out the following:

• How to Form a China WFOE: Choosing Your Chinese Company Name
• Forming a China WFOE: Scope is Key
• Forming a China WFOE: Ten Things To Consider
• How to Form a China WFOE: Revealing Investor Ownership is NOT Optional
• 7 Rules on China WFOE Registered Capital

We will be discussing the practical aspects of Chinese law and how it impacts business there. We will be telling you what works and what does not and what you as a businessperson can do to use the law to your advantage. Our aim is to assist businesses already in China or planning to go into China, not to break new ground in legal theory or policy.