It’s Thursday. Still about a week left before I take off for a Spring Festival vacation (do entrepreneurs have vacations?) and still a few things to take care of.
On Monday we should get the letter of reference from the nice folks at HSBC confirming that we had little other choice than to open an account with them and pay them large fees for holding onto our money at low interest. With this letter of reference in hand we will be ready to file for our WOFE (Wholly Owned Foreign Enterprise).
One of the great things about China in this decade, is that its fairly straight-forward to have a 100% foreign-owned company incorporated in China. Minimum capitalisation is fairly low — around US$140k, and the other requirements are not ridiculous. Some industries are still restricted (advertising being among them) but for most foreigners, if you have enough cash to open a business, then the government of China is happy to let you open a business on terms not that different than those for local Chinese.
But that doesn’t mean the terms are always great.
There are plenty of funny things about business licenses in China that you might not find in the West. For instance, when you incorporate in China, you generally incorporate in a city, like maybe Shanghai. To be more specific, you incorporate in a district in that city. Find a great new office in Luwan district, but you’re incorporated a couple of blocks away in Xuhui? Fine! Just transfer your company registration to the new district. This will take about 3 months and during that time you won’t be able to bill for services or sign contracts. And different cities and districts can have different practices regarding tax and other issues. So choose carefully.
For me, last time we incorporated in Pudong. This time around it looks like we will be setting up in Songjiang. Lower taxes and more flexible regulatory environment should make this worthwhile. That’s choice number 1 done.
One of the other peculiar issues in setting up a WOFE company revolves around the timing. From the day that we file our documents for setting up our new company, we can expect to wait four months for the process to be complete. Once the process is complete, we will receive our company chop and be legally authorised to sign contracts and do business in China. Of course, as part of our WOFE application we have to submit a copy of the office lease for our company. Um, yeah. Once the WOFE license is complete we will legally be allowed to sign contracts. So wouldn’t signing an office lease four months before we have a company be illegal? Sounds a bit like a discussion I once had with a former girlfriend. But it’s best not to argue these things (it wasn’t good to try to reason it out with her either) so we will sign some kind of office lease. Choice number 2 done!
So this leaves us with our certifications. Unlike in most Western countries, business licenses in China are quite specific. If your license does not specify your right to do business in a particular field, then you are not permitted to sell products or services in that area. If you have a consultancy company and you try to sell advertising, then you can (and will) be shut down. So when you file for a business license, be it WOFE or local, you need to imagine what fields you might want to sell in. Of course, the higher the value potential of a field or the more politically sensitive it is, the more restrictions you can expect. You might be expected to prove experience or expertise in that field, or invest a higher start-up capitalisation. Or, in the case of a WOFE, you might need to show that your company is specifically licensed to do that sort of business in its home country. (Pretty tough to do if you come from somewhere like the US where business licenses usually do not specify a business specialty).
Here at Mingtiandi we can’t afford fancy consultants or law firms to advise on tricky issues like licensing. But we are also way too smart to just stumble around and hope for the best. So this week, Winni my Wonder Assistant, has been busy researching what areas our competitors are licensed. Then we just copy the licensing practices of the smartest competitor and we’re good. Choice number 3 done.
Tomorrow it’s back to grinding out some budget numbers and seeing how much cash we will burn through making the new site and the new company. If I’m lucky, I could stretch the excitement into the weekend.
Now it’s time to play on Facebook some more. Hope someone has enjoyed this and will let you know when the site is ready for beta!
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