Things You Need to Consider Before Starting Your Business

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Understanding Company Law-Legal Representative & Liability

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Many individuals who plan to start their own business often inquire whether our firm can assist them in setting up a company. While the answer is affirmative, I often find that when I ask them about the location of their office or who will be the legal representative and supervisor, they have no response. Their expressions reveal a lack of understanding in these areas.

In my opinion, regardless of the business plan, it is crucial to conduct thorough research and understand the requirements for establishing a company in China. We have previously discussed certain concepts in our articles, such as the role of a legal representative or further details about registered capital. Let's delve deeper into these topics:

1. Choosing the appropriate company name:

The first step is to determine the company name. In China, a typical company name consists of the company name itself, the main industry, entity type, and the city name.

For instance, "Guangzhou Highland Trade Limited Liability Company" indicates that the company is located in Guangzhou, engaged in trade as its main business, and is a limited liability company. The name "Highland (Guangzhou) Trade Limited Liability Company" places the city name after the company name. It is important to note that once the format of the company name is chosen, it cannot be changed without approval from the relevant authority. The shareholder can only decide the unique part of the company name, and we generally recommend preparing at least three name options in advance.

2. Determining the shareholders:

According to relevant PRC laws, both overseas entities and individuals can establish a company in China. For most individual clients, they typically have their overseas company already incorporated. Now, the question arises: which option is better, a company or an individual shareholder?

In my opinion, individuals are a better option in terms of cost control and time efficiency. They only need to present their original passport during the company registration process. In some cities, the shareholder doesn't even need to be physically present.

On the other hand, if an overseas company is chosen as the shareholder, a legalized copy of the company's certificate of incorporation must be provided. This involves notarizing the certificate of incorporation in the local notary office and obtaining certification from the Chinese embassy or consulate in the home country, a process that usually takes a couple of months and incurs several thousand RMB in costs.

Of course, there may be other factors to consider, such as tax implications, so consulting with an accountant in the home country is highly recommended.

3. Legal representative and supervisor:

While a start-up may not require a board of directors, a company must have at least two candidates for the roles of executive director, manager, and supervisor. The executive director can also serve as the manager, but neither of them can be the supervisor.

Additionally, the shareholders need to assign a legal representative who represents the company externally. The legal representative can be either the executive director or the manager. As we explained in our previous article on: Understanding Company Law-Legal Representative & Liability, they play a vital role in external representation. Therefore, the legal representative should be an individual client or someone they trust. In most cities, the physical presence of the legal representative is not necessary at the local Administration for Market Regulation. However, their signature is required when opening a bank account.

Considering this, the legal representative should be someone present in China during the incorporation procedure. Afterward, they do not need to stay in China regularly, but they should entrust the company seal to someone they trust.

It is important for aspiring business owners to thoroughly understand these aspects and seek professional guidance to ensure a smooth and compliant company setup process.