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When foreign companies decide to enter China, they can choose different entities to set up depending on their budget and long term goals.
A branch office is one of the highly popular choices among foreign investors because it allows the company to become operational in less time and with less money invested.
In this article, we want to talk about what is a branch office in China and what are the steps required to open one.
What is a Branch Office (BO)?
The Company Law gives the first definition of a branch office:
- “Article 14: Companies may register branch companies. A branch company does not possess legal person qualification and its civil liability shall be borne by the company.” But this hardly explains anything until we dig on what it means to possess legal person qualification. We might need to look at its characteristics.
Also, According to Article 45 of the “Regulations of the People’s Republic of China on the Administration of Company Registration”, revised in 2016, a branch refers to an organization established by a company to engage in business activities outside of its residence.
A branch office is under the control of the company in terms of business, capital, personnel, etc. It’s a type of affiliation with no independence, both legally and financially.
Although, in accordance with Article 48 of the “Civil Procedure Law of the People’s Republic of China”, a branch office shall apply for a business license.
Below there are some characteristics of a branch office:
- A branch office is established by a company in accordance with the law;
- A branch office does not independently possess any property. It also does its accounting in an integrated way with the company;
- The company bears the branch office’s liabilities in business activities;
- A branch office does not have articles of association, a board of directors, or other decision-making or executive organs;
- A branch office is comparatively easy-maintenance.
What can a Branch Office in China Do?
According to the “Regulations on the Administration of Companies Registration”, the business scope of a branch office shall not exceed the business scope of the company to which it belongs. If it does, the company must apply for a registration of change on its business scope first.
The “Implementation Opinions on Several Issues Concerning the Application of Laws on the Administration of Approval and Registration of Foreign-Invested Companies” stipulates that branches of foreign-invested companies may engage in liaison and consultation within the business scope of the company.
Branch Office VS Subsidiary (WFOE)
The situation where a Branch Office requires the company to bear all liabilities is determined by the essence and legal status of a Branch Office, i.e., the Branch Office is not a real company.
It does not possess the qualification of an independent legal person. If the company does not want to bear the debts of its affiliates, it can consider setting up a subsidiary that has the status of a legal person. Thus, the subsidiary will be liable for its debts within the limit of all its property.
Process to Register a Branch Office in China
The Chinese government law requires a formal registration procedure for opening a branch office.
The time required to set up a branch office is not as long as the one required for a WFOE. It usually takes two months. But when the company needs to increase the capital to set up the branch office, the increased time should be considered and this can extend the process to set up a BO.
Another reason why the time can be extended is that the branch office wants to start a business beyond the business scope of the company.
But what is the general steps for opening a branch office in China (the steps below are for a branch office in Shanghai. We suggest you to contact us to know more about how to open a branch office in different Chinese cities).
Before any operation takes place, 4 things need to be confirmed:
- The company’s decision-making organ agrees to establish and makes such a resolution;
- The company is in good standing with no overdue capital contributions or other violations;
- The business scope of the branch office shall not exceed the company’s business scope;
- The branch office to be set up owns an operating space.
Pre-approval for Office Name
Depending on how special your Branch Office is, you might need to go through a pre-approval at either the municipality level or at the district level. This usually takes 1 to 5 working days.
Registration
Then the company must prove to the administration that its office has an effective leasing contract.
In many cases, a safer choice should be settling for a virtual address.
That means your company is registered with one address while operating at another. But be careful, not all addresses are equally qualified as a registered address. It is better to consult a professional service provider before choosing your office.
Documents to Submit to the Administration of Market Regulation
- Application for registering the BO
- Pre-approval for BO’s name
- Leasing contract
- Business license of the company
- Articles of association of the company
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