Analysts can learn who owns or controls a company, how it works, and what kinds of activities it engages in by analyzing Chinese corporate structures. Companies in China are subject to a patchwork of laws and regulations that vary based on the type of corporation.
Through the State Administration of Market Regulation’s National Enterprise Credit Information Publicity System, all Chinese enterprises must declare their owners, officers, and basic facts such as address and date of establishment, regardless of their kind.
Types of corporate structures in China
The vast majority of corporate entities in China are classified as one of two types of corporations under China’s 2013 Company Law:
Limited liability company
In China, limited liability companies are typically used by smaller, less constrained businesses. The maximum number of stockholders in a Chinese LLC is 50. The quantity of subscribed capital determines each shareholder’s ownership share; in other words, the degree to which each shareholder has a say in company decisions and a claim to the company’s earnings is defined by the capital he or she contributed to when the firm was formed.
Although shareholders can choose to choose more than one director and supervisor, Chinese LLCs are only needed to have one. There are no limits on transferring firm shares between shareholders. A transfer of business shares from one shareholder to an individual or corporation that is not currently a shareholder, on the other hand, requires the consent of shareholders who own at least half of the company’s registered capital.
Company limited by shares
Unlike LLCs, larger corporations, including publicly traded corporations, use the company limited by shares form (which must be companies limited by shares). The main distinction between a company limited by shares and an LLC is that shareholders’ ownership is established by the number of shares they possess in the corporation. Each share is worth the same.
A board of directors and a board of supervisors are required for companies limited by shares. Furthermore, the shareholders must hold regular meetings. If a publicly listed corporation is restricted by shares, it must also designate independent directors. Companies limited by shares have no restrictions on the transfer of their shares.
Other corporate structure types defined by the company law
The Company Law further provides the following company structures in addition to the ones mentioned above:
One-person limited liability company
This sort of corporation is comparable to a conventional LLC in terms of rights and obligations, but it can only be formed by a natural person.
Wholly state-owned company
The federal government or a provincial government establishes wholly state-owned corporations. Unlike other businesses, the company’s directors are appointed by a state-owned Asset Supervision and Administration organ rather than by the board of shareholders.
Partnership
In China, the partnership form is largely utilized to aggregate investment funds from multiple individuals or companies.
The 2006 Partnership Enterprise Law governs partnerships. Because partners are not required to declare their participation in the partnership, Chinese partnerships offer more privacy than other company forms. The quantity of each partner’s stake, as well as the rights and obligations that come with it, are decided by the ownership share, or as otherwise provided in the company’s articles of formation. Without the consent of all other partners, partners may not sell their investment to a third party.
General partnerships and limited partnerships are the two types of partnerships in China. Limited partnerships, according to Sayari, are more than twice as frequent in China as general partnerships.
Sole proprietorship
As part of China’s “reform and opening” political reforms, sole proprietorships were the first form of private company structure introduced. A sole shareholder in a sole proprietorship must be a natural person and a Chinese citizen. The 2011 Sole Proprietorship Enterprise Regulations control them. While the legislation allows sole proprietorships to be operated by a family rather than a single person, in reality, Chinese corporate records only designate a single person as the company’s operator.
In English, sole proprietorships are sometimes known as “home enterprises” or “individual industrial and commercial entities” in China.
Other corporate structure types
Although less popular, the following business structures can nevertheless be seen in Chinese corporate records:
Branch office
In China, branch firms are not considered separate legal entities; rather, they are a portion of a legal entity that is registered in a jurisdiction different than the parent company’s. Branch companies must be named using the pattern [name of parent entity] [location of the branch (optional)] [branch company ] according to Chinese legislation. Because of this rule, a Chinese branch company’s parent firm may always be determined only by its name.
Representative office
Representative offices are considered local offices of a foreign legal entity, rather than separate legal entities. Representative offices, like branch corporations, must be titled in the following format: [country where parent entity is incorporated] [name of parent entity] [representative office].
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