A joint venture (JV) is a form of foreign invested enterprise (FIE) that is created through a partnership between foreign and Chinese investors, who together share the profits, losses and management of the JV. Foreign companies can invest in businesses that are restricted by the government to Chinese companies. Certain sectors are reserved only for Chinese entities or JVs.
Originally, Joint Ventures were seen by the Chinese themselves as being a vehicle for generating exports, and as a means of encouraging high technology manufacturing. Despite the fact that the purpose of JVs is typically for production or for research, they can also be formed for a continuing purpose. Joint ventures in China can combine large and smaller companies to take on one or several big, or little, projects and deals.
Often the joint venture creates a separate business entity, to which the owners contribute assets, have equity, and agree on how this entity may be managed. The new entity may be a corporation, limited liability company, or partnership.
Salient Features of China Joint Venture-
- Optimum utilization of resources
- Joint control reduces the risks and costs
- Form long lasting business relationships
- Pooling of resources and expertise
- Sharing of profit and loss
- Access to advanced technology
- Achieve synergy
Types of Joint Venture Structures in China-
The type of joint venture is based on the various factors like, the purpose for which it is formed, number of firms involved and the term for which it is formed.
Equity Joint-Venture (EJV) structure: It is a type of joint venture in which two or more parties set up a separate legal company to act as the vehicle for carrying out the project. The business structure for an EJV is a separate limited liability company (LLC). This shields each partner and business from liability. Each partner participates in gains and losses according to the percentage equity ownership they have in the joint venture. Equity Joint Ventures, profits must be allocated according to the ratio of the capital contributions made by the partners.
Contractual Joint-Venture (CJV) structure: The parties to a contractual joint venture contract with each other directly and carry out the joint venture business without a separate corporate vehicle. A contractual route is well established in the market and can be simpler to put in place than a corporate joint venture. This agreement is in open format. Either enter the requisite details in the highlighted fields or adjust the wording to suit your purposes.
The biggest advantage of China joint venture is that it enables foreign investors to use the partner’s labor force and already existing facilities, networks, channels, etc. The Chinese authorities encourage foreign investors to use this form of company in order to obtain exposure to advanced technology and new management skills.