An Introduction to Chinese laws governing the subjects conducting commercial activities in China Investors who are going to set up enterprises always pay attention to their organizational forms, since forms are closely related to the decision-making process, taxation and risk avoidance afterwards. An increasing number of foreigners have been planning to or have invested in China since the adoption of reform and opening up policy. The organizational forms of enterprises that Chinese investors shall set up vary from those foreigners shall do. This article will analyze the differences through comparison, so as to facilitate you to carry out investment activities. I. Organizational forms of enterprises taken by Chinese investors In China, the most common organizational forms of enterprises include sole proprietorship enterprise, partnership enterprise and company system enterprise according to the legal standard. Companies are divided into oneperson limited liability companies, limited liability companies and joint stock limited companies. 1. Sole proprietorship A sole proprietorship enterprise is an enterprise that is invested and owned, operated and controlled by individuals. Individuals 20
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enjoy all profits as well as take all risks. It is the oldest and simplest organizational form. Sole proprietorships are mainly prevalent in retail, handicrafts, agriculture, forestry, fisheries, services and family workshops. 2. Partnership Partnership refers to a profitmaking organization into which the partners enter by concluding a partnership agreement that stipulates that they jointly contribute capital, operate, share profits, take risks, and bear unlimited several and joint liabilities for the debts of the enterprises. Partnerships include general partnerships and limited
partnerships. 3. Company A Company refers to a legal person that is established by investors (or shareholders). A company operates independently and is responsible for its own profits and losses. According to Chinese Company Law, its organizational forms include limited liability companies and joint stock limited companies. A one-person limited liability company is a company with only one natural person shareholder or one legal person shareholder. A limited liability company shall be set up by more than one but no more than fifty shareholders, each of whom shall bear limited liability
