Many people are planning to start their own business and they always ask us: can your firm help us to set up a company? The answer is sure, however, when I ask them: where are you going to locate your office? or Who is going to be the legal representative? There is no response. From their expression，I can tell they have no clue at all.
In my opinion, no matter what kind of business plan you may have, the first thing you need to do is some homework to understand what is needed to set up a company in China. We actually have explained some concepts in our previous posts: FAQs Regarding Setting Up a Company in China or Why Is a Business License so Important in China? let’s talk more.
1. Choose the right company name
The first thing you need to do is to figure out the company name. In China, a typical company name consists of company name, main industry, entity type and the city name. For example, “Guangzhou highland trade limited liability company”. Guangzhou is the city where the company is located, trade is the main business of the company, limited liability company is the entity type, highland is the name chosen by the shareholders. Or you can say, “Highland (Guangzhou) trade limited liability company”, put the city name behind the company name. However, once you choose the format of the company name, you can’t change it unless approved by the relevant authority.
In the above mentioned company name, Highland is the only part that can be decided by the shareholder. This part of the company name has to be unique and can’t be identical or similar to any existing name in the same city and industry. So we usually suggest that our clients prepare at least three names in advance.
2. Who should be the shareholder?
According to related PRC laws, either overseas entities or individuals can set up a company in China. As we are aware, most of our individual clients have their overseas company incorporated already. Here’s the question now, company or individual, which option is better?
In my opinion, for the purpose of cost control and to save time, individuals are a better option. All they have to do is to show their original passport to the authority when applying for company registration. In some cities, the shareholder themselves don’t have to show up at all. However, if you use your overseas company as the shareholder, then you need to provide a legalized copy of the company’s certificate of incorporation (which means they have to have the certificate of incorporation notarized in local notary office and then certified by Chinese embassy or consulate in their home country), the procedure usually takes a couple months and cost a few thousand RMB. Of course, maybe there are some other factors that need to be considered, mainly tax, so it’s highly recommended to consult with the accountant in your home country to have a better idea.
3. Legal representative & Supervisor
For a start-up, having a board of directors is not necessary. However, a company needs at least two candidates for the following titles: Executive Director, Manager and Supervisor. The Executive Director can be the same person as the Manager, but neither the Executive Director nor the Manager can be the Supervisor. In addition, a Legal Representative should be assigned by the shareholders, as the person to represent the company externally. Either the Executive Director or the Manager can be the Legal Representative of a company.
As we already explained in What is a Legal Representative?, a Legal Representative is the person who represents the company externally. So the Legal Representative, should be the individual client or someone he/she trusts. In most cities the Legal Representative’s presence is not required in the local counterpart of Administration for Market Regulation, however, the Legal Representative’s signature is required when the bank account is opened. This factor being considered, the Legal Representative should to be someone in the territory of China when the incorporation procedure proceeds. Afterwards, the Legal Representative doesn’t have to stay in China regularly but he/she will need to leave the company seal with someone he/she trust.
4. Office
Unlike in HK, virtual offices are not allowed in mainland China. So the first thing you need to think about is: Do I have enough budget to rent an office? Or is there any alternative?
There are three options:
Rent an office in an office building, this is the most common way;
Rent a shared space in some office building. Usually you can register your company in the shared space. However, if you want to use the company to apply for work permit for yourself or any one, you need to double check.
Rent a commercial apartment. There are two kinds of apartments, one is for living, another is for commercial purpose. The usage of a commercial apartment is more flexible, you can choose to live there (you can even cook there, as long as you don’t use open fire); you can use it as an office, or you can do both.
5. Business or industry
A company can do many types of business, as long as it’s outside of the negative list or they get related permission. However, it has to choose one industry as its main industry, and this will be mentioned in the company’s name. Other industries, will be covered in the “business scope” of the company. According to related laws, permission from the competent authority is required for certain business, such as training, wine importing, and food production. The business license will be granted as per the shareholder’s application, but the company needs to meet certain requirements to get permission to do certain types of business.
6. Budget and possible revenue
As we explained, there is no requirement or time frame for minimum registered capital contribution any more, you can start your business with limited funds. The threshold to start a company is pretty low now. However, it doesn’t mean there is no need to prepare funds to operate your business. You should calculate your budget carefully and prepare accordingly. Of course, you will get some business after the company is set up, more or less. But don’t count on any revenue which is not in your bank account yet. Usually, I will tell my clients: suppose there is no revenue in one year, and prepare one year’s operation fund before you start your company, including but not limited to: rent, employee’s salary and social insurance.
