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Joint Venture (“JV”)

A JV company allows Chinese partner participation. In the past, the Chinese Government mainly encouraged this type of company to be setup as it could bring in new technologies, skills, management and knowledge to China. In general, JV is the fastest way to set up a company in mainland China. As for WFOE and a representative office, the business nature needs to be approved by the Government before registration.

There are two types of joint ventures in China: (1) Equity Joint Venture and (2) Cooperative Joint Venture.

(1) Equity Joint Venture

Mainland China Company Registration

This type of joint venture is commonly used in manufacturing industry, whereas a limited liability company is set up for such purpose in general. In essence, the distribution of profits of equity joint venture is subject to the percentage of total capital invested. If the foreign partner invested 49% of total invested capital into JV, it will receive 49% dividends.

(2) Cooperative joint ventures
Cooperative Joint Ventures are more flexible. They can be established either as a limited liability company or as a non-legal person; whereas subject to unlimited liability. If it is not a limited liability company, the JV partners will be liable for any losses that the JV has incurred. We highly recommend Cooperative Joint Ventures to be established as limited liability companies.

Before the registration of a JV company, a Joint Venture Agreement must be in place, specifying the scope of business, total capital investment amount, share percentage, period of licence, distribution of profits and termination arrangements. All the JV companies contain a period of licence. If the JV company has achieved the date of completion and the JV licence is not renewed, the JV parties are required to follow the Joint Venture Agreement to distribute the profits.

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