Zhuhai CJV Setup
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Zhuhai China CJV Setup is also called Zhuhai China CJV formation, Zhuhai China CJV registration, Zhuhai China CJV incorporation and Zhuhai China CJV establishment.
A CJV is formed jointly by at least one Chinese investor and at least one foreign investor in accordance with Sino-foreign Cooperative Joint Venture Law and other regulations. Foreign companies, other economic organizations and individuals may act as foreign investors. Chinese companies, enterprises and other economic organizations may act as Chinese investors. The investors contribute capital or provide cooperation conditions to the CJV as set forth in the cooperative joint venture contract between the Chinese and foreign investors. Their respective rights and obligations are set forth in the cooperative joint venture contract. Unlike EJV, CJV investors share rights and take responsibilities according to their contract instead of the percentage of capital contribution. After all taxable loses are offset, foreign investors of CJV can collect their investment before Chinese investors.
Zhuhai China CJV setup-Allow access to restricted sectors
In a CJV, Chinese partners can hold and “lend” assets and licenses that are forbidden to foreign investors under PRC law or that are undesired by the foreign partner, until the venture terminates or foreign ownership rules are relaxed. Undesirable assets may include those with a high transfer tax, or those that are too complicated or costly for the foreign investor to obtain, such as land. For example, a Chinese company can “lend” its license to a CJV in a value-added telecom network (see The Ups and Downs of Telecom and Internet Ventures). A Chinese company would not be permitted to transfer such a license to an EJV because the license, if forbidden to foreign owners, would be considered part of the whole company’s assets. A CJV could also allow negotiated levels of management and financial control, as well as methods of recourse associated with equipment leases and service contracts; in an EJV, foreign investors cannot always obtain such control since EJVs typically rely on equity levels to assign board seats and key staff and to determine other rights.
Zhuhai China CJV setup-Alleviate capital contribution difficulties
The CJV’s foreign partner can contribute or lease to the joint venture expensive Western technology and equipment, such as medical diagnostic equipment. The CJV can then repay the foreign partner at an “advanced rate” from revenues before profit sharing. This strategy can be used in sectors in which the law caps foreign ownership and when the Chinese partner cannot afford to fund assets up front. Under an EJV ownership structure, such an arrangement is impractical or impossible unless the Chinese side can contribute the amount of cash or assets needed to fund its equity up to the minimum Chinese ownership level required.
Zhuhai China CJV setup-Allow more foreign management control
Foreign partners can often obtain the desired level of control by negotiating management, voting, and staffing rights into a CJV’s articles of association. Because these rights do not have to be allocated according to equity stakes, the CJV again provides more flexibility than an EJV.
Zhuhai China CJV setup-Reduce risk
The CJV structure also tends to force partners to address rights and responsibilities in advance. The PRC government must approve all CJV investments to determine that the venture may legally engage in the specified business scope. Government approval of detailed CJV contracts has the added benefit of sanctioning the detailed agreements and deterring local partner noncompliance. Thus, CJV contracts commonly provide better recourse than EJV contracts if one partner fails to comply with agreements.
Zhuhai China CJV setup-Are easier to terminate or modify
Ending a CJV may be easier than ending an EJV—particularly if the partners held assets separately and clarified contingency dissolution terms in advance. In some sectors, when risk of failure in the development phase of a project is high, CJV contracts can be modified without terminating a partnership and forgoing investments and goodwill.
Zhuhai China CJV setup-Resolve expense controversies
If the CJV’s foreign party finds it necessary to incur expenses that the Chinese party disapproves of, the expenses may be structured under a contract with the foreign party. For example, parties may be able to more easily resolve debates over the high cost of expatriates, whom the Chinese partner could consider unnecessary, by negotiating an acceptable cost in a service contract with the CJV.
Zhuhai China CJV setup-Offer tax advantages
Though CJVs and EJVs have the same tax advantages, CJVs offer some extra tax benefits. For instance, CJVs can sometimes appropriately avoid the asset transfer tax.
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