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Zhaoqing Joint Venture Formation

Update Date:2018-12-25 16:34:29     Views:345

Zhaoqing JV Formation
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A Joint Venture  is a business arrangement in which the participants create a new business entity or official contractual relationship and share investment and operation expenses, management responsibilities, and profits and losses.


Zhaoqing Joint Venture Formation is also called Zhaoqing Joint Venture setup, Zhaoqing Joint Venture registration, Zhaoqing Joint Venture incorporation and Zhaoqing Joint Venture establishment.


Zhaoqing Joint Venture Formation-major types of JV in Zhaoqing
1. EJV (Equity Joint Venture)
Equity joint ventures are the second most common manner in which foreign companies enter the China market and the preferred manner for cooperation where the Chinese government and Chinese businesses are concerned. Joint ventures are usually established to exploit the market knowledge, preferential market treatment, and manufacturing capability of the Chinese side along with the technology, manufacturing know-how, and marketing experience of the foreign partner.


Equity can include cash, buildings, equipment, materials, intellectual property rights, and land-use rights but cannot include labor. The value of any equipment, materials, intellectual property rights, or land-use rights must be approved by government authorities before the joint venture can be approved.


After a joint venture is registered, the entity is considered a Chinese legal entity and must abide by all Chinese laws. As a Chinese legal entity, a joint venture is free to hire Chinese nationals without the interference from government employment industries as long as they abide by Chinese labor law. Joint ventures are also able to purchase land and build their own buildings, privileges prevented to representative offices.

2. CJV (Cooperative Joint Venture)
In a Sino-Foreign Cooperative Venture (also known as Contractual Joint Venture), the parties involved may operate as separate legal entities and bear liabilities independently rather than as a single entity. A cooperative venture may also be registered as a limited liability entity resembling an equity joint venture in operation, structure, and status as a Chinese legal entity.


There is no minimum foreign contribution required to initiate a cooperative venture, allowing a foreign company to take part in an enterprise where they preferred to remain a minor shareholder. The contributions made by the investors are not required to be expressed in a monetary value and can include excluded in the equity joint venture process can be contributed such as labor, resources, and services. Profits in a cooperative venture are divided according to the terms of the cooperative venture contract rather than by investment share, allowing a more flexible schedule for return on investment in cases where one investor provides cash while the other party's investment is primarily in kind.


Zhaoqing Joint Venture Formation-Capitalization of JV in Zhaoqing
1. The concepts of authorized and issued capital are not used in connection with Sino-foreign joint ventures. Instead, the concepts of "registered capital" and "total investment" are employed. Under applicable PRC law, registered capital is defined as the total amount of capital contributions subscribed to by the parties and registered with the Chinese authorities. Thus, the term "registered capital" refers to the parties' equity in the venture. The concept of "total investment", on the other hand, includes both registered capital and external borrowings.


2. Pursuant to regulations promulgated by the SAIC, certain minimum equity requirements are imposed on joint ventures. These are:
Minimum Equity
Total Investment               (% of Total Investment)
<= US$3 Million                 70%
US$3 - US$10 Million        50% or US$2.1 Million (whichever is higher)
US$10 - 30 Million            40% or US$5 Million (whichever is higher)
>US$30 Million                 33.3% or US$12 Million (whichever is higher)


3. The capital to be injected by the parties constituting their capital contribution may take a variety of forms including cash, machinery, equipment and intangible property, such as proprietary technology, trademarks and other industrial property rights. Pursuant to a circular promulgated by SAFE and effective as of 1 April 2003, subject to SAFE's approval, a foreign party may also use the assets obtained by way of early recoupment of investment, liquidation, share transferring, capital reduction etc. from FIEs it has previously invested in. In addition, the Chinese side may contribute the right to use a site and count this as part of its contribution.
Registered Capital (US$M)      Contribution Time Limit
<=0.5                                       1 year
>0.5 but <=1.0                         1.5 years
>1.0 but <=3.0                         2 years
>3.0 but <=10.0                       3 years
>10.0                                      subject to approval with reference to actual condition


4. Chinese law permits joint ventures to borrow funds from either Chinese or foreign banks in excess of the parties' capital contributions. Shareholder loans from the foreign party are also permitted. (Chinese partners likely will not have a sufficiently broad scope of business to permit them to provide shareholders loans.) All such loans should be registered with SAFE and should not exceed the difference between the registered capital amount and the total investment amount.


Formation-Transfers of Equity Interests in Joint Ventures
If a party proposes to transfer all or part of its interest in the registered capital of the joint venture company to a third party, then each other party has a pre-emptive right to purchase the equity interest proposed to be transferred. As an equity transfer also requires amendment of the joint venture contract and articles of association, which in turns requires the signature of each party, each party in effect holds absolute consent rights to any transfer generally. All transfers of registered capital additionally require a unanimous approval of the joint venture company board of directors and approval by the original government authority which approved the joint venture contract and articles of association.


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