Nothing is more satisfying than seeing your business grow and taking that leap of faith in trying a new business venture. Taking your business to a whole new level for greater profitability opens a great opportunity; however, it certainly would require a lot of financial resources.
Have you ever wanted to expand a business or enter a new market but lack capital, resources, assets, or market knowledge? Forming a joint venture might be the answer to your frustration. Read on to learn more.
What is a Joint Venture?
A joint venture is a strategic business arrangement in which two or more parties, either big or small businesses, join together to enter a new market or expand and develop businesses. A joint venture is similar to a partnership, where two business entities share costs, resources, profits, losses, assets, liabilities and knowledge to form a successful business. The difference between the two is that a partnership is a single business entity formed by two or more people, while a joint venture is a new business entity formed by different parties/companies for a defined period of time.
Forming a Joint Venture with a Chinese Company
China’s economy is growing exponentially as many entrepreneurs enter the market. Its economy has a lot of opportunities to offer and having a Chinese partner simply opens an easy access to local resources such as sales and distribution channels.
To form a joint venture, a written agreement/contract between parties is needed. The agreement should simply indicate the names/companies involved, common business objective or purpose, how much capital/resources each party is contributing, roles and responsibilities, partition of profits and losses, exit plan, business plan, place of business and ter
Procedures for Establishing a Joint Venture with a Chinese Company
- Identify business objective/scope – First off, it’s critical to carefully define products and markets – this also helps you select the right local partner to start a joint venture.
- Discuss detailed a business plan, legalities, total investment and the formation process together with your JV partner and a legal firm or agency.
- Prepare all requirements to start the company – The process to start a joint venture usually takes between 4 and 6 months. First off, note that most of the requirements/applications must be written in Chinese, and non-Chinese citizens are not allowed to directly submit the application documents to the relevant authority.
- Written Agreement or Letter of Intent signed by both parties
- Company Name – for approval by the local Administration for Industry and Commerce (AIC)
- Legal Address of the Company
- Business Plan / Feasibility Study
- Articles of Association
- Names of directors, general manager, supervisor and legal representative;
- Certificate of Incorporation
- Capital credit certification/ Bank Reference Letters from each investor’s bank
- Passport copy
- Standard MOC filing forms
- Apply and Register for a Business License
- Submit the joint venture name to the local Administration for Industry and Commerce (AIC).
- Once approved, obtain a certificate of approval for the establishment of the JV from the Municipal Commission of Commerce (MOC).
- Register for a business license with the local AIC.
- Open a Bank Account in China
Documents required will vary from bank to bank, but most common documents needed are company name and its list of directors, proof of identification, business license, enterprise code certificate, tax registration certificates or articles of association. Check this article about opening a Chinese bank account to get you started.
- Complete Other Post-Registration Formalities
- Organization code license from the Technical Supervision Bureau (TSB)
- Tax certificate from the Tax Bureau
- Registration and approval with the State Administration of Foreign Exchange
- Capital verification report from a certified public accountant (CPA)
- Register with the Administration of Foreign Exchange to create a foreign currency account
- Register with and obtain a certificate from the Bureau of Statistics
- Obtain an import-export license from the Customs House
- Obtain a certificate of financial registration from the local Finance Bureau
Advantages of Joint Ventures in China
1. Increase market reach and generate greater profits: China’s consumer economy is growing faster than any other country in the world – which means enormous business opportunities for foreign and local investors.
2.· Access to local resources and region expertise: Let’s face it, there is nothing more intimidating than opening a business in a country that’s as bureaucratic as China – and having a Chinese partner that already has experience doing business in China is simply the best – especially on the application and registration part.
3. Build relationships and networks: With a local Chinese partner, it will be easier for you to create business relationships with various sales/distribution channels.
Risks of Joint Ventures in China
1. Cost & complexity of establishment: Starting a company anywhere in the world is hard, and I believe it’s a lot harder in China – the cost and complexity of business establishment takes a lot of time, effort, and money.
2. Finding the right local partner: The process of finding the best Chinese factory/company to partner with is critical because a joint venture concept can only be successful when there is a true willingness to move forward together. If you’ve ever chosen the wrong partner, then you’re more likely to lose money.
3. Conflict of Cultures: Miscommunication, different beliefs and preferences, and clash of cultures may result into poor business management.
Sometimes, even though we have the best business ideas, it requires a little push to make it happen. This push could be a temporary partner or arrangement between your company and another to support you both financially and operationally to accomplish a specific goal — forming a joint venture could be the most plausible solution. Still, keep in mind that the success of a joint venture relies on both parties — hence you must do thorough research and choose the best person/company to help you get along. Good luck!