Daxue Talks transcript #18: Buzz around WFOE and JV in China

Find here the Daxue Talks episode 18. From the talk with Coster, learn useful tips about changes to Chinese business law.

Full transcript below:

I am Nicolas Coster, I’m a French business lawyer. I’ve been in China for 16 years and specialized in foreign direct investment. So, basically, I set up companies in China.

1. What are the consequences of the changes for those who have WFOE or JV in China?

Nicolas Coster: For WFOEs, it is very simple, there are no consequences for the moment because the investment law says that WFOE will become a Chinese company. And the WFOE law was based on the company law from 2006. For the new companies, all will be based on the new company law, so that means there is no change, basically, for the WFOE.

For the JV, the changes are much bigger, because, for the JV, they are not according to the company law in China, meaning there will be a switch between the meeting of investors and the board of directors to be the main power of a company. 

2. How much time do I have to change the format of the company? And how will the process look?

Nicolas Coster: The first thing you have to do … there is no emergency, the new law says you have a 5-year period, so basically from 2020 to 2025 if you want you don’t move or you move – this is your choice. So, the first thing you need to do is to withdraw the article association and a JV contract from the administration of the chamber of commerce, which is a company register of China, to be sure that the document you have in your file is up to date. Once you withdraw them, of course, you need to review them with your lawyer to decide if this is an advantage for you to change or to not change and if you need to append the discussion with your Chinese partner.

3. Considering the change of power from the directors to the investors in JV, is it compulsory to change this balance of power?

Nicolas Coster: It is compulsory which is mean you don’t have a choice; you have to change it. 

4. Does It mean that the former structure with the director deciding of the changes of the company can block this change of balance of power to other investors and shareholders?

Nicolas Coster: Until 2025, yes, they can block; after 2025 they have to follow the law because they will not be able to block it.

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