Specific information for wholly foreign-owned enterprise structure

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Introduction

With the development of China’s WFOE, more and more foreign businessmen open WFOE in China. So, What are the types of wholly foreign-owned enterprise structure? And how they work?

The wholly foreign-owned enterprise structure relates to the company’s development conditions in China. According to China’s conditions and various functions, foreign businessmen can better formulate business plans. In this way, they will have a better development. Therefore, it is very important for foreign businessmen to understand these.

Next, let’s get to know the wholly foreign-owned enterprise structure together.

WFOE structure china

WFOE management structure

Two kinds of management structures

Commonly, there are two management structures in China. Moreover, they are very suitable for wholly foreign-owned enterprises.

First, the board of directors

The board of directors shall consist of at least three directors. Moreover, one of them must be the chairman.

Second, WFOE has only one executive director.

In some cases, the company has few shareholders or only one shareholder. Moreover, the business scale of WFOE is relatively small. And they will choose this structure usually.

As for responsibilities, executive directors and board of directors are the same.

And when setting up a WFOE  you must choose one from these two structures.

Nevertheless, shareholders are the highest authority of WFOE. Therefore, they have the right to make basic decisions on all major matters of a wholly foreign-owned enterprise.

board of shareholders

WFOE supervisor structure

A wholly foreign-owned enterprise shall establish a board of supervisors composed of no less than three members. However, Some companies have a smaller scale and a small number of shareholders. And they can only appoint one or two supervisors instead of the board of supervisors.

The board of supervisors shall consist of at least three persons.

The term of supervisors holding a post

The term of supervisors holding a post is three years. Moreover, after three years, supervisors can be re-elected.

However,  the directors or other senior managers cannot serve as supervisors again.

Responsibilities of wholly foreign-owned enterprises structure

Responsibilities of the board of directors and executive directors

There are many responsibilities of the board of directors and executive directors. Now we will introduce them one by one.

  1. First, they are responsible for convening shareholder meetings. Then, theyshould report the meetings to shareholders in time.
  2. Second, they are responsible for implementing the decisions of shareholders
  3. Third, they are responsible for formulating the company’s strategies and the company’s investment plan
  4. Fourth, they have to formulate the company’s annual financial budget plan and the final accounting plan.
  5. Fifth, formulate profit distribution plansand loss recovery plans of the company.
  6. Sixth, they must formulate plans for the company to increase or decrease the registered capital andtotal investment. Moreover, they should issue corporate bonds.
  7. Seventh, they are responsible for dividing departments of the company
  8. Eighth, they are also responsible for liquidation, dissolution of the company, and changes to the legal form of the company. Meanwhile, they are also responsible forM&A Plan
  9. Ninth, they make the decisions of the company’s internal management
  10. Tenth, they are responsible for appointing and dismissing the general manager and determining his salary
  11. Eleventh, they can appoint and dismiss other senior managers and determine their remuneration based on the recommendation of the general manager
  12. Twelfth, they have to formulate the company’s basic rules and policies
  13. In addition, they also need to perform other responsibilities stipulated in the articles of association.
reseponsiblity

Duties of the supervisory board of the company’s supervisor

Although the company’s supervisors rarely participate in the actual execution of the company. However, they have played a good role in overseeing the company.

The main responsibilities they need to perform are as follows:

  1. First of all, one of the important tasks of supervisors is that they check the company’s finances
  2. At the same time, they also supervise the performance and responsibilities of directors and other senior managers. Moreover, they can propose the removal of any director or senior manager who violates laws, administrative regulations, the company’s articles of association, or the resolutions of the general meeting of shareholders.
  3. Also, if the actions of directors or other senior managers harm the company’s interests, supervisors can request them to correct.
  4. They can also propose to convene an extraordinary general meeting of shareholders. At the meeting, they can disclose any improper behaviour of the board of directors or executive directors that violates the functions prescribed by law
  5. In the general meeting of shareholders, supervisors can put forward their suggestions.
  6. Finally, they can suethe directors or senior manag
  7. In addition, they also need to perform other responsibilities stipulated in the articles of association.

After the responsibilities above, WFOE also has some requirements for its personnel.

Personnel Requirements wholly foreign-owned enterprise structure

  1. First of all, shareholders are the highest authority for all wholly foreign-owned enterprise Therefore, a WFOE should have an executive director or a board of directors. Moreover, the shareholders decide on their agenda.
  2. In addition, all wholly foreign-owned enterprises should have one or more supervisors. In order to avoid conflicts of interest, directors and senior managers can’t serve as supervisors at the same time.
  3. In addition, if a company has some shareholders, it can have one or two executives. However, larger companies must have a supervisory board. Meanwhile, this board of supervisors has at least three members.
  4. As for the board of directors, shareholder representatives and company employee representatives must compose it together. Moreover, the number of representatives of company members should be one-third of the board of directors. And the articles of association must stipulate this ratio. Most importantly, all supervisors should elect the chairman of the board of supervisors. Moreover, chairman approval should be more than 50%.
  5. WFOE should have a general manager. And he is responsible for daily company operations. Meanwhile, the general manager can be a member of the board of directors or an executive director.
  6. At last, WFOE can hire local employees directly. Moreover, if the WFOE wants to hire foreign employees, the law does not restrict it.
personnal requirements

Pros&cons of WFOE structure

Advantages

From the perspective of the wholly foreign-owned enterprise structure, WFOE does not need to consider Chinese partners in its business strategy. Therefore, WFOE is independent and can operate its own company freely.

Moreover, the wholly foreign-owned enterprise structure is complete, and they can not only issue invoices to customers but also earn income in the same way.

They can convert profits from RMB to U.S. dollars and then transfer them to their parent country.

According to Chinese law, WFOE can protect its technological assets.

Moreover, based on complying with Chinese laws, WFOE can fully control its human resources.

In addition, the WFOE can be export their products without import and export licenses.

However, the WFOE also has some disadvantages.

Executive shareholders decision

Disadvantages

Since the establishment and the application process are very complicated, this process also takes a long time and is prone to errors.

Moreover, WFOE has limited government support in China. And this leads to fewer opportunities for it to study.

Compared with RO(Representative Office), the registered capital of WFOE must be foreign capital.

In addition, there are regional differences in Chinese regulations, and the WFOE must adapt to these regulations.

So far, we have almost done with the wholly foreign-owned enterprise structure.

So, when establishing and registering of the WFOE, what related documents does the WFOE need to prepare in advance?

Documents about wholly foreign-owned Enterprise structure required

Related document needed for register

  1. The subject qualification certificate or identity certificate

Foreign investors must notarize the subject qualification certificate or identity certificate at the national notary office. Moreover, the Chinese consulate in their home country must certify them.

When registering a company, the WFOE must submit a foreign investor’s subject qualification certificate or identity certificate.

  1. Moreover, there needs an original copy of the appointment letter of the WFOE chairman and board members. Moreover, this appointment letter must have the sign of the chairman or general manager.
  2. In addition, a local bank’s credit certificate is also required.
  3. In terms of personnel, WFOE needs to provide resumes and identity certificates of board members or general manager and deputy general managers.
  4. Foreign personnel in the company need to provide copies of their passports. Similarly, if they are from Hong Kong or Macau, they need to provide a copy of their home visit permit.
  5. For the company, WFOE needs to provide its own board resolution.
  6. The company’s legal representative needs to provide a copy of his passport or Hong Kong ID card. Besides,  He/She also needs to provide the access pass.
  7. Finally, if the investment is from a company, the WFOE needs to provide the company and the directors of the company when registering.

The documents above are required for registration of the wholly foreign-owned enterprise structure.

And in the WFOE approval process, which documents related to the wholly foreign-owned enterprise structure does a WFOE need?

documents

Related document needed for Procedure

In the WFOE approval process, the WFOE needs to provide the following personnel-related documents.

And you can check this list during handling the following procedures.

  1. First, when engraving the company seal, WFOE needs to provide the ID card of its legal representative or person in charge of others in charge.
  2. Second, when applying for the corporate organization code certificate, the WFOE needs to provide an original and a copy of the ID card of the legal representative or responsible person.

Similarly, foreigners need to provide their passports. And Hong Kong and Macau residents need to provide Hong Kong and Macau permits. Taiwanese also need to provide Taiwan compatriots card. If you are a soldier, you need to provide an officer ID.

In addition, the WFOE also needs to provide the original and a copy of the ID card of the handler. Meanwhile, the WFOE also needs to provide a certificate of the authorized operator for registration. If the name of the legal person or person in charge is not registered on the relevant certificate, the WFOE also needs to provide a copy of the appointment document.

  1. Third, when tax registration, WFOE needs to provide them with an original and a photocopy of the legal representative’s identity certificate.
  2. Fourth, when opening an account and verifying capital, WFOE needs to provide a square private seal of all shareholders.

Other things you need to know

There are also two originals and two photocopies of all shareholders’ ID cards.

Of course, these certificates need to have the private seals of all shareholders stamped.

Finally, WFOE needs to provide two originals and photocopies of the agent’s ID card. As the certificates above, these must have the private seals of all shareholders stamped.

By the way, if you want to know more about Registration&Procedure of WFOE, you can get the information on China WFOE formation | Its process and registration

After finishing the news above, let’s make a review of it.

Conclusion

In summary, there are two WFOE management structures in China. One is a WFOE with the board of directors, and another one is a WFOE with only one executive director. Between them, the first is a WFOE with a large scale, and the second one is for a WFOE with relatively small scale. Both of them work well in China.

And for the supervisor’s structure, a WFOE with a large scale should have a board of supervisors. Moreover, the board should have at least three members. Meanwhile, for a WFOE with a smaller scale, it doesn’t have to set up a board of supervisors. But it should have one or two supervisors.

For the Responsibilities of a wholly foreign-owned enterprise structure, it should be complete. It is important for a WFOE to run effectively. And most importantly, it should obey the Chinses related law.

As for documents the registration and procedure needed, there is plenty of information above. But if you prepare the documents above in advanced. Things will become much easier. Most importantly, the list above can help you with the troublesome register and approval procedure. Just check them one by one.

Besides, the advantages provide lots of convenience for WFOE running effectively. Correspondingly, the shortages of a WFOE also exist. All you need to notice is to learn the regulations carefully. And you can avoid lost because of the shortages.

By the way, in addition to WFOE, foreign companies can also open SFJV (Sino foreign joint venture) in China. And you can find information related here Joint venture

Finally, thank you for reading. If you think this article is helpful, please share it with your friends.

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