Explaining Valuable Components of China WFOE

The Wholly Foreign Owned Enterprise (WFOE or WOFE) is a Limited liability company wholly owned by the foreign investor(s). In China, WFOEs were originally conceived for encouraged manufacturing activities that were either export orientated or introduced advanced technology. However, with China’s entry into the World Trade Organization (WTO), these conditions were gradually changed. WFOE business entities in China are increasingly shifting more to consulting and management services, software development, and trading.

The Concept of WFOE in China

Primarily, the WFOE concept was developed in order to enhance manufacturing activities that are either trade-oriented or presented cutting-edge technology. The unique feature of a WFOE is that involvement of a mainland Chinese investor is not required, unlike some other investment vehicles in China. However, creating the best WFOE structure is complicated, and requires the consideration of many factors.

The main reasons to set up a WFOE are

  • Profit-oriented business activities
  • Address human resources independently
  • Expand to create subsidiaries

WFOE Business Scope

You cannot engage in all kinds of business activities. You must operate under the business scope that has been approved by the Chinese authorities. A WFOE does not include branches established in China by foreign enterprises and other foreign economic organizations. To engage in distribution, an existing manufacturing wholly foreign-owned enterprise (WFOE) will need to expand its business scope. Adding distribution into its business scope means that the WFOE will be able to import goods to China to sell directly, either in wholesale or retail; as well as establish a fully operational China sales and after sales platform.

Key Component of China WFOE

A crucial component of setting up a WFOE is the registered capital. It is the amount of money you promise to invest in your organization. The registered capital of a Wholly Foreign Owned Enterprise (WFOE) should be subscribed and contributed solely by the foreign investor(s). WFOE is an independent company which develops its own strategy and makes profits in the Chinese market.

It is critical that both the business scope and total investment are accurately defined at the initial application phase to receive government approval as, once established, the WFOE is legally obliged to remain within the parameters of its business scope and meet its financial commitments.

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Check The China Lawyers Credentials to Avoid Fake Law Firms

As these Chinese market turned out to be a billion dollar market for the foreign businesses and offers many business opportunities, a growing number of fake law firms are emerging. The problem appears to be nationwide and fake law firms are mushrooming throughout China as well as abroad. Foreign business are losing their money by getting duped by a bogus law house. Some scammers reportedly are stealing a law firm’s entire Web page, then changing the contact information to redirect traffic elsewhere.

The growing problem of fictitious law firms in China

The most common incident related to the fake lawyers and law firms is they built a temporary website and after a foreign client paid them money for drafting a manufacturing agreement, registering trademark or forming a WFOE, they simply shut down the website and get away with the money. After a long wait, the foreign company realises that they have been cheated by a fraudulent law firm. The alarming thing is this type of incidents have become a common and regular practice in China.

Why it is difficult to crack down fictitious law firms in China

Cracking down on counterfeits can be difficult as a maximum number of fake law firms operate from outside China. Copying techniques have improved so much that some counterfeits website of the law firms now look just like the originals. Apart from this, the laxity from the Chinese authorities to curb the problem is also another factor behind the increasing number of fake law firms.

How to check the China lawyers credentials

There is a large number of phony legal firms in China to cheat unsuspecting overseas businesses. So it is really important investigate them more in-depth than just skimming through their website.

>>  Conduct due diligence before you appoint a China lawyer, especially if you will be paying upfront for something like a China company registration or a China trademark.

>>  Rather than try to spot a fake lawyer, why don’t you go to the official websites such as acla.org.cn or ibanet.org/China.aspx and hire one that you know Is licensed. Takes a bit of a mystery out of it, but it also takes out the risk.

>>  Call the relevant bar associations or lawyer licensing bureaus to confirm the lawyer(s) you are about to use are actually lawyers. Ask him for his bar number and jurisdiction. Then verify it with the state bar.

>>  Scammers are generally bad spellers and bad grammarians. So ask your law firm to submit a possible brief remedy of case and check how professionally they have drafted the solution on paper. More than a few misspellings combined with improper verb conjugation or singular-plural problems is typically a strong indicator.

Conclusion-

To guard your IP, a competent, experienced, trustworthy Chinese lawyer is indispensable. Hope you find a real lawyer using these suggestions and that you prosper in your case and in your life.

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