China Business License Types: Which Structure Is Right for You?

Choosing the right business structure is one of the most important decisions when entering China. Each type has different capabilities, limitations, and requirements. Here's what you need to know.

Main Options for Foreign Companies

1. Wholly Foreign-Owned Enterprise (WFOE)

A WFOE is a limited liability company 100% owned by foreign investors.

Advantages:

• Full control — no Chinese partner required
• Can conduct business, issue invoices, hire employees
• Profits can be repatriated
• Intellectual property stays within your control

Disadvantages:

• Higher setup costs and capital requirements
• More complex registration process
• Some industries still restricted or prohibited

Best for: Companies wanting full control and planning significant China operations.

2. Joint Venture (JV)

A company owned jointly by foreign and Chinese investors.

Advantages:

• Access to Chinese partner's local knowledge and relationships
• Required for some restricted industries
• Shared investment and risk

Disadvantages:

• Shared control and potential conflicts
• IP protection concerns
• Complex governance and exit issues

Best for: Industries requiring local partners or when local expertise is essential.

3. Representative Office (RO)

A liaison office that cannot conduct direct business activities.

Advantages:

• Simpler and cheaper to establish
• Good for market research and relationship building
• Lower ongoing compliance burden

Disadvantages:

• Cannot conduct business or sign contracts
• Cannot issue invoices or receive payment
• Limited to liaison, market research, and coordination
• Taxed on deemed income basis

Best for: Companies testing the market before committing to full operations.

4. Foreign-Invested Partnership (FIP)

A partnership structure with foreign partners.

Advantages:

• No minimum capital requirement
• Pass-through taxation
• Flexible management structure

Disadvantages:

• Unlimited liability for general partners
• Less common and understood
• May face practical difficulties

Best for: Professional services firms, investment vehicles.

Key Factors in Choosing

Business Scope

What activities do you need to conduct? Your business license specifies permitted activities. Some require special approvals.

Industry Restrictions

Check the Negative List — some industries are:

• Prohibited: No foreign investment allowed
• Restricted: Requires JV or special approval
• Permitted: Open to foreign investment

Capital Requirements

While minimum registered capital requirements have been relaxed, practical considerations remain:

• Banks may require certain capital levels to open accounts
• Some licenses have capital requirements
• Working capital needs

Timeline

Typical setup times:

• WFOE: 2-4 months
• JV: 3-6 months (partner negotiations add time)
• RO: 1-2 months

Common Mistakes

• Wrong business scope: Too narrow limits your activities; too broad raises scrutiny
• Underestimating capital needs: Running out of registered capital creates problems
• Choosing RO when WFOE is needed: ROs cannot conduct business
• Not planning for exit: Closing a China entity is harder than opening one