I often get asked by people on how to move their business to China. The answer to this question is complicated depending on their choice of entities to set up, their budget and long term goals. In my view, opening a branch office is one of the best choices among foreign investors, because it allows the company to become operational in less time and with less money invested.
In this article, I want to talk about what is a branch office in China and what are the steps required to open one.
What is a Branch Office (BO)?
A branch office is under the control of the company in terms of business, capital, personnel, etc. It’s a type of affiliation with no independence, both legally and financially.
Although, in accordance with Article 48 of the “Civil Procedure Law of the People’s Republic of China”, a branch office shall apply for a business license. Below there are some characteristics of a branch office:
- A branch office is established by a company in accordance with the law;
- A branch office does not independently possess any property. It also does its accounting in an integrated way with the company;
- The company bears the branch office’s liabilities in business activities;
- A branch office does not have articles of association, a board of directors, or other decision-making or executive organs;
- A branch office is comparatively easy-maintenance.
What can a Branch Office in China Do?
According to the “Regulations on the Administration of Companies Registration”, the business scope of a branch office shall not exceed the business scope of the company to which it belongs. If it does, the company must apply for a registration of change on its business scope first.
The “Implementation Opinions on Several Issues Concerning the Application of Laws on the Administration of Approval and Registration of Foreign-Invested Companies” stipulates that branches of foreign-invested companies may engage in liaison and consultation within the business scope of the company.
Branch Office VS Subsidiary (WFOE)
The situation where a Branch Office requires the company to bear all liabilities is determined by the essence and legal status of a Branch Office, i.e., the Branch Office is not a real company.
It does not possess the qualification of an independent legal person. If the company does not want to bear the debts of its affiliates, it can consider setting up a subsidiary that has the status of a legal person. Thus, the subsidiary will be liable for its debts within the limit of all its property.
Process to Register a Branch Office in China
PRC law requires a formal registration procedure for opening a branch office.
It usually takes at least two months to set up a branch office. And, if the company needs an increased capital for setting up the BO, the added time for the sub-sequential registration process should be taken into account. That can extend the process largely.
If the branch office wants to engage in business beyond the company’s business scope, that also could extend the time needed to set up the company.
Here is a general step-by-step example for opening a branch office in Shanghai.
Before any operation takes place, 4 things need to be confirmed:
- The company’s decision-making organ agrees to establish and makes such a resolution;
- The company is in good standing with no overdue capital contributions or other violations;
- The business scope of the branch office shall not exceed the company’s business scope;
- The branch office to be set up owns a qualified operating space.
Pre-approval for Office Name
Depending on how special your Branch Office is, you might need to go through a pre-approval at either the municipality level or at the district level. Fortunately, this is not a troublesome process anyway, which usually takes 1 to 5 working days.
Then the company must prove to the administration that its office is well located with an effective leasing contract.
Specifically, in China, to lease a building for business can be somewhat of a luxury. In many cases, a safer choice should be settling for a virtual address.
That means your company is registered with one address while operating at another. But be careful, not all addresses are equally qualified as a registered address. If you’re lucky enough, a residential building should be good to go. And more often than not, you need to consult a professional service provider.
Documents to Submit to the Administration of Market Regulation
- Application for registering the BO
- Pre-approval for BO’s name
- Leasing contract
- Business licence of the company
- Articles of association of the company