The ownership structure and legal status of the Chinese companies are defined by the PRC national laws. It can be simply categorized into two groups: the domestic companies in which the owners are pure Chinese legal entities or individuals, while the foreign invested companies, in which some or all investors maybe foreign legal entities or individuals. The legal structure and their governance of companies in China evolving rapidly in recent years to reflect the progress of China 's legal, market and economic developments.
Types of Chinese Domestic Companies
Sole proprietorship company: it is a type of company that is legally set up inside China and be invested by a natural person. The company and all its properties are owned by the investor. The owner of the company is liable in an unlimited capacity for its debts to the extent of his personal property.
State-owned enterprise: It is also known as state-run enterprise. T he property of the state-owned enterprise belongs to the nation, as indicated by the name. The nation appoints a management team to be responsible for the business operations. The enterprise has the legal person status and is responsible for its profit and loss.
Collective owned enterprise: also known as collectively-run enterprise, it may have different scopes of the “collective”. For example, township collectively-owned enterprise is owned by the town; a unit collectively-owned enterprise is owned by a particular unit or a group of people. The ownership of collectively-run enterprise belongs to the defined group of people but no quantitative number of ownership defined. This is different with joint and stock-holding enterprise.
Joint-stock company: also known as stock company, refers to a company or corporation whose capital is divided into shares. The ownership is defined in transferable shares of stock. Any legal entities or individuals may invest in the company in exchange for the proportional amount of shares.
The foreign invested companies
The foreign investments are basically divided into direct investment and other means of investment. In terms of the direct investment, there are Sino-foreign joint ventures, joint exploitation and wholly foreign-owned enterprises, foreign-funded share-holding companies and joint development. The other means of investment includes compensation trade and processing and assembling.
Sino-foreign joint ventures : they are formed in China with joint capitals by foreign companies, enterprises, other economic organizations and individuals with Chinese companies, enterprises, other economic organizations and individuals. The main feature is that the joint parties invest together, operate together, take risk according to the ratio of their capitals and take responsibility of losses and profits. The capitals and other assets from different parties are translated into the ratios of ownership. Sino-Foreign Joint venture must have a set term of operation. The liability for such business is limited to the investment to the business.
Sino-Foreign Cooperative enterprises: also known as contractual cooperation enterprises, they are formed in China with joint capitals or terms of cooperation by foreign companies, enterprises, other economic organizations and individuals with Chinese legal entities and individuals. The rights and obligations of different parties are embedded in the contract. To establish a cooperative enterprise, the foreign party, typically, supplies all or most of the capital and technologies, while Chinese party supplies land, factory buildings, and useful facilities, and also some supply a certain amount of capital, too. Cooperative businesses must have a set term of cooperation. The liability for such business is limited to the investment to the business.
Wholly foreign-owned enterprises: They are exclusively invested by foreign companies, enterprises, other economic organizations and individuals in China in accordance with laws of China . The wholly foreign funded enterprises often take the form of limited liability company.
Foreign-funded share-holding companies: Foreign companies, enterprises, other economic organizations and individuals can form foreign funded share-holding companies in China together with Chinese legal entities. The share-holding company is formed by equal shares. Shareholders will take due responsibilities for the company according to shares purchased; company will take responsibilities for all its debts through all its assets and the Chinese and foreign shareholders will hold the shares of the company. The qualified enterprises can also apply to issue A & B shares in the Chinese stock market or listing abroad.
Some commonly used terms regarding Chinese company ownership:
- 个人独资企业： sole proprietorship enterprise/sole investment enterprise
- 国营企业： state-run enterprise
- 国有企业： state-owned enterprise
- 集体企业： collectively-run enterprise
- 乡镇企业： township enterprise
- 公营企业： public enterprise
- 私营企业： private enterprise
- 私营工商业： privately owned industrial and commercial enterprise
- 公私合营企业： joint state-private enterprise
- 合作社企业： cooperative enterprise
- 合资企业： joint venture
- 外向型企业： export-oriented enterprise
- 劳动密集型企业： labor-intensive enterprise
- 技术密集型企业： technology-intensive enterprise
- 国有大中型企业： big-and-medium-sized state-owned enterprise
- 亏损企业： money-losing enterprise
- 联合企业： conglomerate
- 工业企业： industrial complex
- 生产型企业： production enterprise
- 三资企业 : Tri-capitalized enterprises
- 中外合资企业 : Sino-foreign joint ventures
- 中外合作企业 : Sino-foreign cooperative enterprise
- 外方独资企业 : Foreign-funded enterprise
- 股份公司： Joint-stock company or stock company
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