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Wholly Foreign Owned Enterprises (WFOE)
A Wholly Foreign Owned Enterprise (WFOE) is a Limited Liability Company established in China by foreign investor(s). A WFOE is very much like a LLC in the USA that it requires one member only.
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The registration procedures of a Wholly Foreign Owned Enterprise (WFOE) could be divided into 3 phases: aproval phase, registration phase and post-establishment phase.
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A Wholly Foreign Owned Enterprise (WFOE) could be terminated by way of liquidation or deregistration by its investor(s) or when the conditions of termination in its Articles of Association occurs.
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China Taxation
Under the current tax system in China, there are 25 types of taxes which could be divided into 8 categories. The major ones are Business Tax, Value Added Tax and Enterprise Income Tax. More
Representative Offices are also liable for Business Tax and Enterprise Income Tax. However, a RO could be exempted if its parent company is in the manufacturing business.
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Any individual who has domicile in China or who has no domicile in China but has resided in China for one year or more shall pay Individual Income Tax on his world-wide income.
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CHINA BUSINESS REGISTRATION
WHOLLY FOREIGN OWNED ENTERPRISES


Powers and Reponsibilities of Board of Directors

(1) Composition of Board of Directors

Lying at the heart of corporate governance structure the BOD's (Board of Directors) authority is next to the shareholder's meeting. Both CLS (Company Limited by Shares) and LLC (Limited Liability Company) except for SMEsare required by the China Company Law to set up a BOD. The number of directors differs in LLC and CLS, i.e. the minimum number is five and the maximum is nineteen in the CLS, while in the LLC the minimum is three and the maximum thirteen. The odd number is designed to deal with any deadlock among the directors in the decision-making process. A LLC company with a very small number of shareholders could simply appoint a Managing Director.

The LLC created through investment by two or more SOEs (State Owned Enterprises), or by two or more State-owned investment entities of other kinds, shall have representative of the workers on the Board of Directors. The workers of the company democratically elect such directors. Pursuant to the ministerial rules of the CSRC the listed company shall have independent directors, accounting for 1/3 of the total directors in the company by 30 June 2003. Such independent directors shall not hold any post other than directorship in the company and have any other material factors detrimental to his/her independent judgment. Else, he/she is not eligible independent director.

The Board of Directors in both LLC and CLS has one chairman and one or two vice-chairmen. The methods of selecting the chairman and vice-chairman in LLC is the autonomy of the articles of association, while in the CLS they are elected by simple majority votes of the directors. The chairman is the legal representative in both CLS and LLC. The chairman in the CLS enjoys separate powers and functions, including:-
(1) presiding over meetings of shareholder's meeting, and convening and presiding over the BOD meetings;
(2) supervising the implementation of resolutions adopted by the BOD;
(3) signing the corporate stocks and bonds.

In addition when the BOD is not in session, the chairman may exercise part of the authorities of the BOD as authorized by the BOD in light of the needs of the company. The vice-chairman assists the chairman's work. If the chairman is unable to exercise his authorities, the vice-chairman as appointed by the chairman exercises such authorities in his capacity.

(2) Powers and functions

The powers and functions of the BOD in both the LLC and CLS are almost identical. The only difference is that the BOD of the CLS may formulate plan of bonds issuance, which is sole power of the shareholder's meeting in the LLC, and the BOD of the LLC may draft plan for changing corporate form, which does not exist in the CLS. The general powers and functions of the BOD include:
(i) convening and reporting its work to the shareholder's meeting;
(ii) implementing resolutions of the shareholder's meeting;
(iii) formulating business plans;
(iv) appointing and removing manager, and appointing and removing vice-managers and financial officer upon the manager's nomination. The BOD is ultimately responsible to the shareholder's meeting.

(3) Term of office

The term of office in both CLS and LLC is subject to the discretion of the articles of association under the mandatory three years ceiling. Upon expiration the directors may be re-elected. Prior to expiration they may not be removed from the office without cause so as to ensure the stability of the BOD.

(4) Convention of BOD meetings

(i) Frequency and convener
The CLS must hold two BOD meetings each year, while there is no such minimal requirement for LLC. The quorum for such meetings is 1/2 of the directors or more. The BOD meetings are convened and presided over by the chairman. If the chairman is unable to exercise such authorities, the vice-chairman as appointed by the chairman may do so in his capacity. In the LLC 1/3 or more directors may initiate the holding of such meeting.

(ii) Notice
Both LLC and CLS shall notify the directors at least ten days prior to the scheduled date of such meeting. As to interim BOD meetings in the CLS, the company may adopt different methods of notices and period of notification. That is to say the BOD of the CLS may convene any number of interim meetings in addition to the two mandatory meetings.

(iii) Voting
The voting procedures of BOD meetings in the LLC are again the discretion of the articles of association provided that such provisions do not conflict the mandatory requirements. The adoption of resolutions in the BOD meetings of the CLS practices simple majority rule, i.e. 1/2 or more directors' affirmative votes. The directors of the CLS must attend the meetings in person. If he is unable to attend the meeting for cause, he may issue a written proxy entrusting another director to attend on his behalf, which shall set forth the scope of authorization. The reason for doing so is that the directors participating in the adoption of the resolution are liable to the company for damages, if such resolution violates any laws, administrative regulations or the articles of association, and causes the company to incur serious loss. Such mechanism is designed to enhance director's diligence and awareness of care and protect him/her from liabilities.

(iv) Minutes
Both LLC and CLS shall prepare minutes for resolutions on matters discussed in the BOD meetings, which shall be signed by all directors present in such meeting. In the CLS the person preparing such minutes shall also sign the minutes. This is the most important evidence to determine whether the specific director is liable, when the resolution violates any laws, administrative regulations or the articles of association, and causes the company to incur serious loss. If such minutes show that the director has dissented at the vote adopting such resolution and such dissension was noted in it, then such director may be exempt from liability.

Please feel free to Contact Us for further information.

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