WFOE structure dilatation | How WFOE is composed

GEI > News > WFOE structure dilatation | How WFOE is composed

Introduction

 

With the development of the world economic integration trend, more and more foreign companies have taken a fancy to the big market of China. And they have chosen to carry out business activities in China.  So, WFOE is getting more and more popular with foreign investors. If you want to own a WFOE, let’s get to know what the WFOE structure is.

Before we get in WFOE structure, first be clear in what is a WFOE.

a red Chinese style door

What is a WFOE

 

WFOE is wholly foreign-owned enterprises. Foreign companies, enterprises and other economic organizations or individuals invest WFOE all on their own. If you need a comprehensive information about WFOE,you can check Wholly foreign-owned enterprise on Wikipedia.

Besides, enterprises established according to Chinese laws.

If you are interested in relevant laws, please visit How much do you know about a foreign company in china

Moreover, according to China’s legal regulations on WFOE, it must be conducive to China’s economic development.

And China encourages WFOE adopting international advanced technologies and equipment.

China encourages WFOE in producing exported products.

WFOE structure, generally a limited liability company, or a one-person company.

As for foreign companies, enterprises or other economic organizations, their branches in China are not WFOE.

Additionally, foreign investment can contribute to instalments.

Starting from the day when the business license is issued, the first phase of funds should be paid within 90 days. This part of the funds should be no less than 15% of the principal. Likewise, the last fund should be paid within 2 years.

Classification

 

  • Production WFOE:  engage in production activities
  • Consulting Services WFOE: Engaged in consulting services activities
  • Commercial WFOE: engaged in trading, wholesale, retail or distribution activities.

Features

 

In addition to land, foreign investors own 100% of the company’s investment.

Can be an investment by a foreign investor or by several foreign investors.

Has no Chinese investors.

WFOE operates independently and there’s no Chinese party participates in management.

Enterprises operate according to the company’s regulations. Meanwhile, there is no interference from Chinese parties.

WFOE is self-financing.

When the enterprise terminates, the WFOE shall announce and liquidate in time, according to legal procedures.

Advantages

 

Compared with other forms of company, the advantages of WFOE are:

In the first place, it can be a complement to its global strategy for its parent company.

Moreover, It has a stronger operating capacity in business.

And the surplus can be settled in RMB

Likewise, It is free to convert between RMB and USD

Of course, it can outbound remittance to the parent company

In light of relevant regulations, it can give customers invoices.

It is also conducive to protecting its intellectual property rights and patented technologies.

Furthermore, there are no special requirements for import and export licenses.

Besides, WFOE has all the personnel management rights

It is more efficient in the management, development and operation of the company.

Inverstor for WFOE structure

Business scope

 

The business scope of all industries in China is very strict and precise.

In this manner, wholly foreign-owned enterprises can only carry out business activities within their permitted business scope.

Relevant departments will indicate the business scope of the company on the business license.  Therefore, if you need to modify it, you need to apply and obtain approval.

Of course, the approval department can grant a wider business scope through certain consultations.

If WFOE reinvests the profits after paying income tax in China, it can apply for a refund of part of the income tax paid for the reinvestment in accordance with national regulations.

China will not nationalize and levy WFOE except in a particular situation.

Composition of WFOE structure

 

According to WFOE classification, characteristics, and policies in China, let’s take a look at the WFOE structure.

WFOE structure picture

Shareholder Council

 

The shareholder council of a limited liability company consists of all shareholders. It’s the most powerful part of the WFOE structure. The shareholder council has a lot of powers. So, so the company should select the personnel carefully.

Next, Let figure them all one by one.

Shareholders meeting

 

Generally, the chairman convenes and presides over the meeting.

When the chairman cannot perform his duties or does not perform his duties, the vice-chairman presides over.

On the other hand, when the vice-chairman cannot perform his duties or does not perform his duties, more than half of the directors recommend a director to preside.

And for companies without a board of directors, convene and preside over the shareholders’ meeting by the executive director.

Rights of Shareholders

 

  1. Decide the company’s operation and investment.
  2. In addition to the directors and supervisors hold the post by the representatives of the staff meeting, a Staff meeting can elect and replace by-election.
  3. Decide on the remuneration of directors and supervisors.
  4. Verify, discuss and approve the following items:
  • Board report
  • Report on the supervisory board
  • The company’s annual financial budget and final account plans.
  • The company’s profit distribution and breakeven plans.
  • Decide to increase or decrease the registered capital of the company.
  • Issue corporate bonds.
  • Take the charge of the merger, division, dissolution, liquidation of the company.
  • Change the company form.
  • Amend the company’s regulations.
  • The powers prescribed in the company’s regulations.
  1. Shareholders need to express agreement in the written pattern.
  2. It can also to make a decision without holding a shareholders’ meeting.
  3. All shareholders need to sign and seal on the consent document

Board of Directors

 

About the board of directors, it has three to thirteen people.

And Board members may include company employee representatives.

By the way, the employees of the company elect representatives through democratic elections.

The director has a chairman, and WFOE can appointment a vice-chairman.

Additionally, elect the chairman and vice chairman according to the company’s regulations.

As to the term of appointment, the company’s regulations decide how long the chairman serves. And the period shall not exceed three years.

When the term of directors expires, the board of directors shall vote a new one. It is one person and one vote for re-election.

In the following situations, the original director shall still perform the duties of a director according to the relevant laws, administrative regulations and the company’s regulations.

  • the term of the appointment expired, but the company doesn’t re-elect a new director.
  • The resignation of directors during their term of office resulted in
  • Thequantity of the director board below the quorum, because of the resignation of directors.
  • Before the new director takes office

The original director shall still perform the duties of the director, according to the provisions of laws, administrative regulations and the company’s regulations.

Manager

 

The board decided to hire or fire managers.

And the manager is responsible to the board of directors, and exercises the following items:

  • Operate and manage the company’s productions.
  • Organize and implement board resolutions.
  • Organize and implement the company’s annual operations and investments.
  • Responsible for the company’s internal management plan;
  • Formulate the company’s basic management system.
  • Manage and formulate specific company regulations.
  • In addition to the management personnel whomthe board of directors should hire or fire, they have the right to fire
  • Other rights granted by the board of directors.
  • Execute other items according to the company’s regulations.
  • Attend board meetings.

Executive director

 

A company with a small number of shareholders or a small scale may have an executive director without a board of directors.

Executive directors can also be company managers.

Has other rights according to the company’s regulations.

Board of Supervisors

 

  • The members of the board of supervisors shall not be less than three.
  • A company with a small number of shareholders ora small scale may have a supervisor without a supervisory board.
  • The board of supervisors should include shareholder representatives and appropriate proportions of company employee representatives.
  • The company regulations decide a specific proportion of employee representatives. But it cannot be less than one third.
  • The board of supervisors shall have a
  • The chairman of the board of supervisors convenes and presides over meetings of the board of supervisors.
  • When the chairman of the board of supervisors is unable to perform the duties, more than half of the supervisors jointly recommend a supervisor to convene and preside over the meeting of the board of supervisors.
  • Neither directors nor senior management can serve as supervisors.

One-person limited liability company

 

Another WFOE structure is a one-person limited liability company.

  • It is a limited liability company with only one natural person shareholder or one legal person shareholder.
  • The shareholders formulate the company’s regulations, and there is no shareholder
  • If shareholders cannot prove that their property does not belong to company property, they shall be liable for company debt.
  • Furthermore, one-person limited liability company may have manager And the board decides to hire or firethem.
  • Of course, board members and colleagues can also be managers.

Corporate Finance and Accounting

 

  • The company has its financial and accounting system.
  • At the end of the year, prepares financial and accounting reports.
  • Submit the financial and accounting reports to the shareholders according to the deadline set by the company.
  • In like manner, shareholder council and the board of directors can engage and dismiss the accounting firm, according to the company’s regulations.
  • The company shall provide the accounting books, financial accounting reports and other accounting materials, and shall not conceal, or misrepresent
  • Meanwhile, the company shall not have other accounting books except this one.
finance and accounting

Conclusion

 

In general, WFOE is classified according to the type of industry engagement.

For example Production WFOE, Consulting Services WFOE, Commercial WFOE

Meanwhile, the business scope of WFOE is according to Chinese relevant laws.

Moreover, compared to other forms of company, it has a lot of advantages.

For WFOE structure, It has shareholder council, the board of directors, manager, executive director, the board of supervisors, and corporate finance and accounting.

In addition, it can also be a one-person limited liability company.

If you want more new on WFOE, please follow our blog. There is news about WFOE prepared for you.

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