Introduction of standing represtative office of a foreign company in China.
By Sun Jin(Marlow), Chinese attorney at Law, email@example.com
|Question: Dear Sun Jin, I wold like to establish my business organization in China, but I am not sure which type of formation is suitable to me, a WFOE (wholly foreign owned enterprise) or a RO (standing represeatitve office) ?|
For foreign companies who would like to have some tests in Chinese market, setting up a standing represetative office(here after referred to as "RO") is a best solution. RO of a foreign company is an organization of business contact acting on behalf of mother company, so a RO is not an independant Legal Person, and it can not carry on business/commercial actions that will make profits directly, in details as follows:
1. It can not sign any sales and puchase contract; and
But it still can carry on some actions so as to enable the purpose of business contact, in details as follows:
1. It can apply it's own bank account; and
So a RO can help the mother company to do some business contacts, for example:
1. Soucing factories; and
So before a freign investors decide to establish a JV or WFOE, it's necessary for them to establish a RO to get knowings about Chinese markets. In fact, most ROs who do trade business in China are carrying on their daily business under name of it's mother company, or via one Chinese export agency company.
Advantage of formation of a RO when comparing with a WFOE:
1. Main advantage is that formation procedure is simple and quick; and