Starting vs Buying a Company in China (updated)

Zenith Services 2023-03-22

The following article is from ExpatServicesShanghai Author Julian

We wanted to repost this article because this has been a common question asked by many as people consider options to stay in China longer and to legally work in China. We have also added some additional details to the original article. Please find the link here:

https://mp.weixin.qq.com/s/KGcQz1L2tXYcDaJSQhzfVg

Recently in a WeChat group, a discussion arose regarding a foreigner that wanted to sell her company in Shanghai. I will change some of the numbers and omit details to respect her privacy. With this said, the discussion made me consider how many times I have come across similar situations recently, especially as people look for solutions to legally work in China.

She started the topic by just saying she had a WFOE for sale. I will come back to an explanation of what a WFOE is later. I questioned her for more details such as the district and city, amount of paid capital versus registered capital, industry, when it was registered, and if the company had any activity or was clean.

She then indicated that it is a consulting company registered in one of the more central districts of Shanghai and has been in operation for a couple of years (she did mention specifically the exact location, and date of registration). She mentioned a range of according to her the cost to register a consulting WFOE being between 15,000 and 25,000 RMB and the time could take three to six months, versus the time to change the ownership of three weeks. She did not specifically mention her price nor did she disclose the capital information.

Here are some introductory comments and then I will comment on the specific situation:

Having a company in China does not guarantee a work permit and residence permit visa. One is required to work legally in China or you risk your profits being taken, company closure, plus other consequences as an individual for working illegally.

If you are unsure if you qualify for a work permit and residence permit, then I would suggest you figure that out first. Remember that the so-called “points system” is just one aspect to the application process. There are minimum requirements to meet for each category as well as some industries have specific requirements.

China has been implementing many corporate and visa laws differently depending on the city and/or district within a city.

Regarding this situation:

Her message provided incorrect facts:

-At least in Shanghai, the process for a foreigner to register such a simple company is between three and five weeks.

-Registering such a simple company in Shanghai can be done for much less than what she quoted.

Complications in registration has been minimized as the government has eliminated the need for many required documents and combined licenses.

Purchasing this company comes with a major risk - when the ownership transfers, you would take over and be responsible for the past history of the company (liabilities).

Taking over this company limits your access to benefits in other districts because even if you change districts for the company’s registration, you are not registering a company from scratch.

Changing districts of a city in China is quite a complicated process for tax and other reasons, and some districts give special benefits for foreign startups

The fees involved are likely to be considerable. Transfer of ownership (to change the documents); perhaps a transfer of office address (a higher price charged and more time involved if changing districts); and her fee which she did not mention.

So, to sum up the situation, besides taking on the risk of the company’s prior affairs, it does not save time or money and also limits your decisions. In fact, in some regards it could take longer and be more expensive compared to starting a new company.

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Zenith Services is a management consulting firm, working with SMEs and startups in China, providing its clients with advice and tailor-made solutions in strategy, recruitment, business operations, project management, and accounting. We are fact-driven and action-oriented. We work with our clients to build the capabilities that enable organizations to achieve sustainable advantages.

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