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About Foreign Investment Types in Mainland China

Updated:2021-10-25 15:28:48    Source:www.tannet-group.comViews:288

Choosing suitable business type as your foreign investment in mainland China is very important.There are some business types, maybe you need know them.

Limited Liability Companies
A foreign individual, enterprise or organisation can be a shareholder of a limited liability company (the “LLC”) and the liability of each investor to the LLC is limited to the amount of capital it agrees to contribute to the LLC's registered capital, whilst the LLC itself is liable for its debts to the extent of all its assets. Investors will hold equity interests in an LLC, expressed as a percentage of registered capital, rather than shares. The highest decision-making body of an LLC is the shareholders’ meeting. The Foreign Investment Law does not require any matter to be decided by unanimous consent of the shareholders. However, certain resolutions, such as amendments to the articles of association, mergers, divisions or dissolution of the FIE, require consent from a two-thirds majority of voting rights of the shareholders present at the shareholders’ meeting. Other decisions can be taken by simple majority. Subject to any higher voting thresholds incorporated into the articles of association, the majority
shareholder will have decision-making power provided that it holds over two-thirds of the issued shares in the LLC. Both foreign and domestic investors may have veto rights with respect to certain reserved matters as stipulated in the articles of association either at board or shareholders’ meeting level, subject to negotiation between the shareholders.

Foreign-invested Companies Limited by Shares
An FICLS is a limited liability company whose registered capital is divided into shares. This is different from an LLC, where investors do not technically own “shares” but instead enjoy “equity interests”,
expressed as a percentage of the registered capital. Promoters(founding shareholders) are prohibited from transferring their shares for one year after the establishment of an FICLS.In an FICLS, the law does not require any decision to have the unanimous consent of shareholders.Only certain resolutions, such as amendments to the articles of association, mergers, divisions or dissolution of the FICLS, require a two thirds majority of voting rights of the shareholders present at the shareholders’ meeting. Other decisions can be adopted by simple majority. Accordingly, subject to any higher voting thresholds incorporated into an FICLS’ articles of association, a shareholder holding more than twothirds of the issued shares in the FICLS has absolute decision-making powers. Both foreign and domestic investors may have veto rights with respect to certain reserved matters as stipulated in the articles of association either at board or shareholders’ meeting level, subject to negotiation between the shareholders. Minority shareholders in a listed FICLS enjoy additional protections at law, such as independent shareholder approval of related party transactions.In addition, FICLSs are able to raise finance through a stock market listing. An FIE must be converted into an FICLS in order to undertake such fund-raising activities.

Foreign-invested Partnerships
An FIP is a general or limited partnership with at least one foreign partner. Generally, the formation of an FIP only requires registration with SAMR. However, if the FIP is to engage in any project which is subject to government approval, such approval must first be obtained. FIPs are subject to the same foreign investment industrial policies as other FIEs. FIPs cannot be formed for investment in industries where foreign investment is prohibited, or foreign ownership is limited. FIPs generally offer more flexibility than other FIEs. Partnership interest can be transferred without the consent of the other partners as long as this is expressly provided for in the partnership agreement. An FIP also provides increased flexibility for the governance structure, with partners permitted to structure their governance
arrangements in their partnership agreement with relatively few constraints.However, unlike other FIEs, liability of FIPs can be unlimited. For a general partnership, all partners will bear unlimited liability. In a limited partnership, partners can have limited liability, although there must be at least one general partner withunlimited liability.FIPs do not have a minimum capital requirement.

About the three business types, if you have any questions, you can contact us at any time. and we will give you suitable solution.

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