Understanding Chinese Corporate Structures
A firm understanding of Chinese corporate structures can help analysts understand who owns or controls a company, how it operates, and what kinds of activity it is involved in. Companies in China are regulated by a patchwork of laws and regulations, depending on what type of corporate entity they are.
Regardless of their type, all Chinese companies must disclose their owners, officers, and basic details such as address and date of incorporation through the State Administration of Market Regulation’s National Enterprise Credit Information Publicity System. (Formerly know as China SAIC Corporate Registry.)
A Chinese company’s corporate structure appears on its NECIPS report.
Fig 1. A company’s corporate structure is located here on its China SAIC report.
Types of Corporate Structures in China
Under China’s 2013 Company Law, there are two primary types of corporations that comprise the vast majority of corporate entities in China:
Limited Liability Company
In China, the limited liability company (LLC; in Chinese, 有限责任公司 or 有限公司) structure is generally for smaller and less restricted companies. Chinese LLCs may not have more than 50 shareholders. Ownership share is determined by the amount of subscribed capital of each shareholder; in other words, the degree to which each shareholder has a say in company decisions and a right to the company’s profits is dependent on the capital he or she subscribed to at the time the company incorporated.
Chinese LLCs are only required to have a single director and a single supervisor, although shareholders can choose to appoint more than that. A transfer of a company shares between shareholders can be done without any restrictions. However, a transfer of company shares from one shareholder to an individual or entity that is not currently a shareholder requires approval by shareholders accounting for at least 50 percent of the company’s registered capital.
Company Limited by Shares
Unlike LLCs, the company limited by shares (股份有限公司 or 股份公司) structure is generally used by larger companies, including publicly traded companies (which must be companies limited by shares). The primary difference compared to an LLC is that shareholders’ ownership is determined by the number of shares of the company that they hold. Each share has an equal value.
Companies limited by shares must have a board of directors and a board of supervisors. Moreover, the shareholders must hold meetings on a regular basis. If a company limited by shares is publicly traded, it must also appoint independent directors. Shares of companies limited by shares can be transferred without any restrictions.
Other Corporate Structure Types Defined by the Company Law
In addition to the above common corporate structures, the Company Law also outlines the following corporate structures:
One-Person Limited Liability Company (一人有限责任公司)
This type of corporation has similar rights and responsibilities to a standard LLC, but may only be established by a natural person.
Wholly State-Owned Company (国有独资公司)
Wholly state-owned companies are established by the central government or a provincial government. The company’s directors are appointed by a State-owned Asset Supervision and Administration organ (国有资产监督管理机构), rather than by the board of shareholders, as is the case with other corporations.
The partnership (合伙) structure is primarily used in China as a vehicle for pooling investment funds from several individuals or companies. Partnerships are governed by the 2006 Partnership Enterprise Law (合伙企业法); an official English translation of the law can be found here.
Chinese partnerships provide more secrecy than other corporate structures, as partners are not required to disclose their stake in the partnership. Ownership share, and the associated rights and responsibilities, are determined by the amount of each partner’s stake, or as otherwise specified by the company’s articles of incorporation. Partners may not transfer their stake to an external party without the approval of all other partners.
There are two forms of partnership in China, general partnerships and limited partnerships. By Sayari’s assessment, limited partnerships are more than twice as common in China as general partnerships.
Sole proprietorships (个体工商户) were the first form of private corporate structure introduced as part of China’s “reform and opening” political reforms. Sole proprietorships have a sole shareholder who must be a natural person and a Chinese citizen. They are governed by the 2011 Sole Proprietorship Enterprise Regulations. While the law stipulates that sole proprietorships may be operated by a family, rather than by a single individual, in practice only a single individual is listed as the company’s operator on Chinese corporate records.
Chinese sole proprietorships are also sometimes referred to in English as “household enterprises” or “individual industrial and commercial units.” In Chinese corporate records, their name may be abbreviated to 个体 or 个体户.
|Sole Proprietorships||Sole proprietorships have a sole owner who must be a natural person who is a Chinese citizen.|
Other Corporate Structure Types
The following corporate structures are much less common, but still appear in Chinese corporate records:
|Branch Company (分公司)||Branch companies are not considered distinct legal entities in China, but rather are a part of a legal entity that is registered in a jurisdiction other than the jurisdiction where the parent company is registered. Under Chinese law, branch companies must be named using the format [name of parent entity] [location of branch (optional)] [branch company (分公司)]. Because of this requirement, it’s always possible to determine the parent entity of a Chinese branch company by the name alone.|
|Representative Office (办事处 or 代表处)||Representative offices are not considered distinct legal entities, but rather are a local office of a foreign legal entity. Similarly to branch companies, representative offices must be named using the format [country where parent entity is incorporated] [name of parent entity] [representative office (办事处 or 代表处)].|
|Chinese-Foreign Joint Venture (中外合资企业 or 合资经营)||While not strictly a corporate structure, a company’s status as a joint venture will be listed in the same field on Chinese corporate records as the company’s corporate structure.|
|Taiwan, Hong Kong, Macau Enterprise (台、港、澳企业)||Taiwan, Hong Kong, Macau enterprise (台、港、澳企业) – Like joint ventures, this is not a corporate structure, but rather an indication that one or more of a company’s shareholders are from Taiwan, Hong Kong, and/or Macau.|
|Cooperative (合作社)||Cooperatives are a legal entity that can be incorporated by rural residents. They are governed by the Rural Specialized Cooperative Law (农民专业合作社法).|
Other Corporate Structure Types
For more information on Chinese corporate structures, check out the Chinese legal code.
The most important law governing the vast majority of Chinese corporations is the 2013 Company Law (中华人民共和国公司法), as amended in 2018. An official English version of the 2013 law (without subsequent amendments) can be found here.
Further regulations are also provided by the 2016 version of the Company Registration Administrative Regulations (公司登记管理条例).