Joint Venture Registration
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Introduction of Joint Venture (JV)
A Joint Venture is a business arrangement in which the participants create a new business entity with an official contractual relationship and share investment and operation expenses, management responsibilities, and profits and losses. As certain industries in China is strictly regulated, if you are in that industry you will need to work with a local company who holds a license. Also creating a Joint Venture with Chinese companies enables you to enjoy the low labor cost, government relationships, and the big Chinese market. There are 2 types of Joint Venture:
Equity Joint Venture (EJV)
An Equity Joint Venture is a Chinese Limited Liability Company (LLC) between a Chinese and a foreign party and is an independent legal entity. Each participant contributes a partial investment to the venture holds a stake in the business.
Shareholdings in an equity joint venture are usually non-negotiable and cannot be transferred without approval from the government. Investors are restricted from withdrawing registered capital during the period of the joint venture contract.
Cooperative Joint Venture (CJV)
In a Cooperative Joint Venture, the parties involved operate as separate legal entities and bear liabilities independently rather than as a single entity. Profits in a cooperative venture are divided according to the terms of the cooperative venture contract rather than by investment share. The foreign investor is permitted to withdraw their registered capital or a portion of it from the cooperative venture during the duration of the cooperative venture contract.
Differences between EJV and CJV
For an EJV:
- Each party must make cash or permitted types of investment subscribed to the percentage of the EJV's registered capital.
- Profit must be divided strictly according to the party's respective percentage of shares.
- When the EJV is closed, the assets will be divided according to each party's percentage of shares.
For a CJV:
- A party can contribute intangible investment other than cash.
- Parties can sign an agreement to share profits in different percentage from their portion of shares.
- When the EJV is closed, the assets will be divided according to the agreement of the parties other than their percentage of shares.