WFOEs usually take the form of limited liability companies and the liability of the foreign investor in respect of the WFOE is limited to the amount of capital it agrees to contribute. The risk of proceeding with a WFOE structure is that a foreign investor will not have the assistance of a domestic partner when obtaining government approvals, premises and land, and cannot benefit from the existing sales and distribution channels of a domestic partner. However, many foreign investors using WFOE structures have found that doing business in the PRC is becoming less difficult over time and is less dependent on local connections. Furthermore, the WFOE structure enables a foreign investor (or multiple foreign investors) to have complete freedom to implement the operational, investment and managerial strategies of the foreign parent company, without having to take into consideration the interests, needs and agenda of a domestic partner. This makes WFOE easier to manage. In addition, it is easier for a foreign investor to protect its know-how and technology, as the WFOE structure makes it easier to limit access. For these reasons, WFOE have become favored to EJV [Equity Joint Venture].
Documents required for setting up WOFE:
- 3x Certificate of Incorporations, or Equivalent document authenticated by Chinese embassyor consulate or notarized by a HK lawyer authorized by Chinese Department of Justice(If the parent company is incorporated in HK).
- 3x Bank Reference Letters from investor’s bank to declare a good standing
- Passport copy of WOFE’s Legal Representative
- WOFE’s Legal Representative provides 6 photos (2 inches size), brief resume signed by the Legal Representative.
- Statement of registered capital and business Scope of WOFE for us to prepare documents.
- Office address in China, 3x leasing contracts, 2x certificate of real estate ownership, and 2x landlord identification).
*Note: WFOEs are prohibited from being established in industries where there is an express
requirement for a joint venture, or where a domestic party is required to hold a controlling interest
under the Catalogue.
Sophie Mao is Sr. Partner at AsiaBridge, a Guangzhou based law firm offering Intellectual Property Protection, Bilingual Contracts, Mediation and Litigation. Sophie is based in Guangzhou.