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In China, a company’s operations are defined by its business scope, a one-sentence description of the industry(s) it is authorized to operate in.Therefore, any significant change to company operations must be preceded by a registered change of business scope.
For any change of business scope, a resolution of the shareholders or board of directors is required. Then an approval and approving certificate for the change of business scope shall be obtained from the original examination and approving authority. After that an application form for registration of changes shall be filled and submitted to the administration bureau for industry and commerce together with the original resolution, approval and approving certificate, original true copy and duplicate of the business license of the company.
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RELATED: Writing Your Scope of Business in Shenzhen
If a company provides services outside of its defined scope of activities, then it will be unable to issue invoices for the particular services. This can cause problems for one’s customers, who might demand the service be entered into their accounting books.
In some cases, companies may be afforded some wiggle room in how they design their business scope—and use this to influence the likelihood of approval/rejection, as well as various taxation and customs issues. For example, a company may choose to market itself as a service provider in a given industry, when in fact its business scope is registered only for consulting and the actual provision of services is outsourced to a local Chinese agent.
Disingenuously fabricating one’s business scope, however, can carry legal consequences including fines or the revocation of one’s business license. Importantly, the business scope of a given enterprise must include or reflect the industry contained in the enterprise name. If the company operates in several industries, then the first item listed in its business scope will be considered its primary industry for naming purposes.
Often, but not always, a change of business scope will require additional investment into the company’s registered capital, which can considerably prolong the application process. Additionally, depending on the nature of the proposed change of business scope, the enterprise may be required to obtain additional approval or modify their business premises to engage in the specified industry. Lastly, the enterprise will have to renew its Certificate of Approval granted by MOFCOM, this being the distinguishing factor between FIEs and domestic enterprises.
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For further queries, please do not hesitate to contact ATAHK at anytime, anywhere by simply calling China hotline at 86-755-82143348, or emailing to amyhuang@citilinkia.com.