A number of China WFOEs have been sold over the years. There are various reasons to that, however, Chinese business lawyers have had to put in a lot of hard work to advice people regarding this. There was a time when China’s economy was contracting and with that contract a great number of WFOEs were sold by foreign owners. WFOEs in renowned and powerful cities like Shanghai, Beijing and Dalian were also sold due to this condition. But this is not the real concern, the real concern lied in how to sell China WFOEs. Since, nothing is easy to buy and sell in China, this has always remained a concern for the business owners as well as for the lawyers.
The Biggest Problem with the WFOE (Wholly Foreign-Owned Enterprise)
The off the shelf WFOEs face the problem of not being customized. If the company has been settled up stating a particular business and has sought permission for a specific business, then the owner cannot change the business scope later on by petitioning to the government. Similarly, if the company needs to move its WFOE to a different city or open a branch still doing the same business, it will also need to petition to the government. However, they can still maintain 2 offices. Therefore, doing proper research before setting up a WFOE is truly essential to find out whether you can set it up without any liabilities which include tax, tort, employee and environment. Doing research will enable you to establish it safely and at a cheaper rate. The biggest advantage of buying a WFOE is its speed.
Many people have tried to sell their WFOEs in China and also thought that it would be simple and straight. But, unfortunately, it is not true. However, the problems faced by different people vary. Terminating the approval and the license of WFOE in China is difficult and time-consuming you have to get it done through the long list of government agencies. Moreover, the fees for closing down a WFOE is too much. You could actually leave everything in the hands of the government but if you are shifting to another city within China, then that would be a problem.
The primary licensing authority is the Bureau of Industry and Commerce in China and visiting this place to get the license canceled involves following a proper method. As long as the company existed, you will have to file tax reports and complete the statutory annual audit and renewal process. You will also have to meet all the other requirements from other agencies. The fact that, the company will not engage in any other activity made no difference.
Selling the WFOE
Not just shutting down the company, but also selling it is a problem within China. The first step is to get a buyer which is comparatively easier, but again filling out the transfer notice for business license as a legal person again is difficult and involves filling out a couple of forms. The buyer actually follows the same process which had to be initially followed while setting up the company. The demand to increase the registration money goes on illegally. The negotiations take a convoluted process and thus the buyer has to beat around the bush. It takes a lot of time to complete the entire process which includes discussions, chopping forms, providing capital for registration and also defining the scope of the business. License transfer consumes separate time.
The process of completion will definitely take you closer to the Chinese bureaucrats. The fact is that the local Chinese government is the de facto partner in establishing and closing down a business. Chinese bureaucrats are omnipresent in any body’s business. Sometimes, in a reasonable manner and at other times in a meddlesome way. You have to pursue government officials to give you permission to let go of your business. The formation of WFOE is easier now, but the process for closing it down still remains difficult and time-consuming.