October 11, 2017 Università degli Studi di Bergamo Markets and Companies Law Avv. Andrea Fassina

Transcription

1 October 11, 2017 Università degli Studi di Bergamo Markets and Companies Law Avv. Andrea Fassina 1

2 Evolution of Chinese approach to market and current issues From protectionism to the legislation period The access to the WTO and the trade war with the USA China s retention of relative majority of US bonds. Interlinks of geopolitics and economics. Protection of foreign IP (poor /growing) vs urgency of western companies to outsource (moving towards stabilization) Currency issues (Chinese authorities have begun liberalizing the exchange rate in summer 2015 trying to stop pegging the CNY to USD. However the Chinese central bank still keeps it depreciated with unnatural consequences on both internal and external markets) 2

3 Types of Business Entities in China (1 / 4) Limited Liability Company This type of entity requires a minimum capital of RMB 30,000 with less than 50 shareholders (requirements may differ upon operation in different market sectors). Corporate capital may be paid in the form of cash, industrial property (also non patented but not in excess of 20% of entire corporate capital) or land use rights. 3

4 Types of Business Entities in China (2 /4) Transfer of shares has to be authorized by majority of shareholders if made to non-shareholders A Board of Directors (BoD) is required. Directors may be from 3 to 13 individuals Supervisory Committee is required (number of members depending on size, 1/2 for SME; no less than 3 for large entities) 4

5 Types of Business Entities in China (3/4) Company Limited by Shares This type of entity is to be set up by public promotion or share offer with a minimum share capital of RMB 5 million (but always depending on the industry). Minimum 5 promoters are required. Establishment by share offer is subject to the approval of China s securities regulator. Share transfers are made through securities exchanges. 5

6 Types of Business Entities in China (4/4) Corporate capital may be paid in the form of cash, industrial property (also non patented but not in excess of 20% of entire corporate capital) or land use rights A BoD is required. Composed of between 5 and 19 individuals. Directors, supervisors and management may not transfer their shares while in office. 6

7 Representative Office (RO) Before actually investing in China, many foreign investors choose to set up representative offices (ROs) to engage in market research and learn more about the country. A RO is optional and is not an independent legal entity. It must confine its activities to promotion or acting as a liaison office on behalf of its parent company. ROs are not allowed to generate revenue, solicit business, engage in warehousing or sign contracts with customers. They can hire local staff through approved employment agencies. How are the main characteristics of corporate law applied here? Is something missing? 7

8 Cooperative Joint Venture (CJV) (1/2) 合资企业 A CJV has the option to register as a legal person with limited liability. The parties in a CJV have the flexibility of choosing whether to operate the enterprise as a limited liability company (or to operate it as an unincorporated entity under which partners bear unlimited liability, depending on the by-laws). The profits of a CJV are allowed to be shared by participants as specified in the joint venture contract, and not necessarily in proportion to their capital contribution. 8

9 Cooperative Joint Venture (CJV) (2/2) Ideal when the foreign investor is only looking for a short-term project. After obtaining a (fair or premium) return on investment, the foreign investor returns the majority or full ownership of the enterprise to the Chinese partner. Transfer or withdrawal of investments is not subject to the approval of the government. Foreign investors can deploy their registered capital in the amount they see fit. BoD required of at least 3 individuals. 9

10 Equity Joint Venture (EJV) (1/2) An EJV is the most common and preferred method of doing business in China. It is a limited liability company and is required to be registered as a legal person. The main feature is that the joint venture parties take responsibility for losses and profits according to the ratio of their equity stake. Equity cannot be transferred or withdrawn under any scenario without the approval of the government (business in China remains under heavy public control). Such corporate type has been typically chosen to access restricted industries such as education, health, etc. 10

11 Equity Joint Venture (EJV) (2/2) BoD is required of at least 3 individuals. The minimum level of foreign participation is 25% of the registered capital in general. Example: Ferrari China Ferrari Maserati Cars Int. Trading (SH) Co., Ltd is a joint-venture between Ferrari S.p.A and China's Poly Technology Co., Ltd., with Ferrari being the major shareholder. As well as managing the Ferrari brand in China, the company also supports the authorized dealer network in ten of the most important cities in China being Shanghai, Beijing, Hangzhou, Chongqing, Chengdu, Guangzhou, Shenzhen, Qingdao, Dalian and Nanjing. 11

12 Wholly Foreign-Owned Enterprise (WFOE) (1/3) 外商独资企业 A WFOE is a 100% wholly foreign-owned subsidiary doing business in China. It is limited to its equity, it can generate income, pays tax in China and its profit can be repatriated back to the investor's home country. Any limited liability enterprise in China which is 100% owned by a foreign company, individual(s) or companies can be called a WFOE. Better protection for technology and know-how. The WFOE is usually incorporated to replace the foreign enterprise representative office (RO). 12

13 Wholly Foreign-Owned Enterprise (WFOE) (2/3) Effective 11 December 2004, all foreign investors are able to establish WFOEs in commercial sectors, hence the term Foreign Invested Commercial Enterprise (FICE). The development has affected the following types of business activities in China: Commission agency Wholesaling Retailing Franchise 13

14 Wholly Foreign-Owned Enterprise (WFOE) (3/3) BoD of at least 3 individuals. But for smaller companies a sole director, who shall also be the company s legal representative, may be appointed. No minimum capital contribution requirement. Who will be responsible for the losses and receive the profits? 14

15 Other types of companies Branches (only for banks and in certain business districts) Build-Operate-Transfer Project (BOT) Hong Kong Holding Foreign Invested Partnership Enterprise (FIPE): a new type of business entity, easy to start-up but with unlimited partners liability. No minimum registered capital required for FIPE. Same as WFOE, FIPE may generate revenue, hire local and foreign staffs and enter into contracts with local and overseas businesses in China. 15

16 ITEMS WFOE/ JOINT VENTURE REPRESENTATIVE OFFICE HONG KONG COMPANY PARTNERSHIP ENTERPRISE Minimum Capital Starts from 100K RMB(*1) Not register capital 1 HKD No minimum capital required Business Scope Specific Industry: Trading WFOE; Consulting WFOE, Manufacturing WFOE(*2) etc. Liaision; Quality Control; Factory Visits All business activities offshore; General Trading Specific Industry according to Foreign Investment Industrial Guidance Catalogue Office In an office building which can register business Shanghai: Grade A building; Beijing: office building Virtual address in HK In an office building which can register business Working Visa 1 year multi-entry Visa(*3) 1 year multi-entry Visa Couldn't have work visa in China and HK 1 year multi-entry Visa(*3) Recruiting Staff recruits staff directly Through Local HR agency: FESCO, CIIC Can't recruit staff in China recruits staff directly Taxation Turnover tax; Income tax, Dividend tax (*4) approx % (*5) on expenses; individual income tax Corporate income tax: 16.5%. No dividend tax Turnover tax; Income tax, Dividend tax (*4) Maintenance Monthly; Quarterly; Annually Monthly; Quarterly; Annually Annual license renewal; Annual audit Monthly; Annually Bank Account Receiving payments Access & receive money; pay bills; issue cheques; withdraw cash in China; RMB account and foreign currency World Wide Can only receive money from parent company; Can only pay for expenses; Can't pay for products Not allowed to receive payments from clients Online banking; withdraw cash in HK; withdraw cash with debit card in China if applicable World Wide (*6 ) access & receive money; pay bills; issue cheques; withdraw cash in China; RMB account World Wide Liability of equity participants Limited to amount of registered capital Parent Company must be established Limited to amount of equity participation Unlimited liability or limited liability in a limited partnership 16

17 Let s talk about Alibaba 17

18 Alibaba stock IPO price: USD 68 per share 9/10/17 price: USD 182 per share 18

19 Alibaba s way 19