Do You Know the Structure of A Limited Liability Company in China?
As of July 1, 2024, the revised Company Law of the People’s Republic of China (PRC) has come into effect, bringing significant changes for foreign-invested enterprises, particularly concerning the organization of limited liability companies. This article examines the updated structural requirements for limited liability companies in China and provides an overview of the primary duties associated with each role. It aims to help foreign-invested enterprises establish a compliant and efficient company structure while ensuring adherence to the PRC’s legal framework.
1. Legal Representative
In China, every company is required to appoint a legal representative, typically the chairman, executive director, or general manager, as specified in the company’s articles of association. The legal representative’s actions are legally binding on the company, and their name is listed on the business license.
（1）The Right of Legal Representative
- External Representation:
The legal representative acts on behalf of the company in external matters. Their actions bind the company, and the company is responsible for the legal consequences.
- Internal Management
The legal representative is central to the company’s management, making key decisions and overseeing operations.
- Signing Contracts or Legal Documents
The legal representative can sign contracts and legal documents on behalf of the company. In some cases, their signature alone, without the company seal, may be sufficient to bind the company.
- Authority Beyond Limits
If the legal representative exceeds their authority when signing a contract, the contract is still valid for the company, unless the other party knew or should have known of the overstep.
- Litigation
The legal representative can initiate legal proceedings on behalf of the company, even if the company seal is unavailable (e.g., lost or controlled by another person).
（2）The Liability of Legal Representative
- Civil Liability – Consumption Restrictions
If the company fails to fulfill a court judgment and enforcement actions are taken, the legal representative may face restrictions on high consumption, limiting their personal spending.
- Administrative Liabilities
If the company commits an administrative offense, the legal representative may face penalties such as fines, detention, or activity restrictions.
- Criminal Liabilities
If the company commits a criminal offense, the legal representative could be subject to criminal penalties, including fines, detention, or imprisonment.
2. Shareholders and Shareholders’ Meetings
Shareholders are essential to a company’s foundation, contributing capital and holding liability up to the subscribed capital contribution. They enjoy rights such as income from company dividends, involvement in major decisions, and authority over key management appointments. The shareholder can be an individual, company or partnership.
The shareholders’ meeting is the highest authority in a limited liability company (LLC) in China, comprising all shareholders (except in single-shareholder companies).
（1）Shareholder’s Liabilities
- Capital contribution within five years
Under China’s new Company Law, shareholders must fully contribute the registered capital of a limited liability company within five years of its establishment.
- Limited liability
Generally, shareholders are only liable for the debts of the company to the extent of their subscribed capital contribution,
- Jointly and severally liability
Shareholders may be held jointly and severally liable in the following two situations:
(i) If a shareholder abuses the company’s independent legal status and shareholder’s limited liability to evade debts, causing significant harm to creditors.
(ii) In a single-shareholder company, if the shareholder cannot prove the company’s assets are separate from their own personal property.
（2）Shareholders’ Rights
- Entitled to the dividends
- Monitor and inspect the company’s finance
- Determine critical business and investment plans
- Appoint directors and supervisors, as well as determining their remuneration;
- Adjust the company’s registered capital through increases or reductions;
- Amend the articles of association;
- Review and endorsing board and supervisory reports, annual financial budgets, accounting strategies, profit distribution, and loss recovery plans; and
- Approve mergers, divisions, dissolutions, liquidations, or changes in the company’s legal structure;
- Authorize the issuance of corporate bonds;
- Other rights as specified in articles of association.
3. Directors and Board of Directors
The board of directors is a key governing body for a company, generally consists of at least three directors, including the chairman, vice-chairman and other board members. In some small-size companies, there may be no board of directors, but only one director, often the executive director.
Directors are elected by the shareholders, serve up to three years, with re-election possible upon term expiration. The directors or board of directors are responsible for managing daily operations and aligning with shareholder interests, mainly including calling shareholder’s meeting, setting operational and investment strategies, formulating various company plans and rules, managing budgets, appointing senior executives and financial officer, executing the resolutions of shareholders’ meeting.
4. Supervisors and Supervisory Board
Supervisors in a company are appointed to ensure the company complies with its regulations and laws. To avoid conflicts of interest, supervisors cannot hold any other executive roles within the company and must remain independent of the management. Supervisory Board shall consist of more than three supervisors, which shall include representatives of shareholders and employees.
The revised Company Law offers more flexibility for limited liability companies regarding the supervisory board system. For a limited liability company that is small size or has a small number of shareholders, it can appoint a single supervisor or, with unanimous consent, forgo the supervisor position.
The Right of Supervisor includes:
- Inspect company finance
- Monitor actions of directors and senior management
to ensure that their behavior aligns with the company’s best interests, and recommend their removal for misconduct
- Investigation Right
The supervisory board may investigate the company when finding the company under abnormal operations, if necessary, it may also engage an accounting firm to have the investigation at the company’s cost.
- Rectify any misconduct
Supervisors have the right to correct the behavior of directors or senior management when it is detrimental to the company’s interests.
- Initiate lawsuits
against any acts detrimental to the interest of the company.
- Right to address question and make suggestions
- Propose for an extraordinary shareholders’ meeting
- Other rights as specified in articles of association.
5. Senior Management
Senior management typically includes the manager, deputy manager, and financial officer. While these positions are not mandatory under Chinese company law, companies have the flexibility to establish them based on their specific needs and organizational structure.
The senior management team is responsible for daily operations of the company, implementing the strategic decisions made by the board of directors, and achieving the goals set by the board.
（1）Manager/Deputy Manager
The manager, as a key executive, leads senior management and may also serve as a director, legal representative, or employee. In limited liability companies, the board of directors appoints or dismisses the manager; in smaller companies, this duty may fall to the director.
Reporting to the board, the manager oversees operations, implements plans, drafts management systems, proposes key hires or dismissals, and exercises any additional board-authorized powers.
（2）Financial Officer
In Chinese companies, the financial officer is a required position, distinct from the Legal Representative or Executive Director. Typically filled by an internal finance manager or third-party provider, this role manages tax compliance, financial reporting, and regulatory adherence, often with support from accounting firms.
Conclusion
The structure of a limited liability company can be summarized as follows: the shareholders’ meeting holds the highest authority, responsible for electing or replacing directors and supervisors, reviewing reports from the board of directors and supervisory board, and making critical company decisions. The board of directors is tasked with executing shareholders’ resolutions and developing strategies for major initiatives, while the supervisory board is responsible for overseeing financial activities and ensuring that directors and senior management fulfill their duties responsibly. For foreign-invested enterprises, selecting the appropriate corporate structure is essential to effectively mitigate potential risks and support long-term growth.
If you have more questions about company structure, please feel free to contact us.
Saway Wang
Email: sawaywang@billionslawyer.com
Tel/Whatsapp: +86 18017682422
What Types of Enterprise Are There in China and Their Pros and Cons
When a foreign company aims to establish or expand in China, choosing the right business structure is crucial. Different structures cater to specific needs based on activities, industry, and investment size. Key factors like legal liability, compliance, setup time, and permitted activities help assess costs, risks, and growth potential. The right choice ensures a solid foundation for smooth operations and future growth in China’s market.
In China, we have the following types of enterprise:
1. Company
Limited liability company
Joint stock limited company
2. Partnership
General partnership
Limited partnership
3. Proprietorship
A sole proprietorship
This article will help you know the types of enterprise in China and their pros and cons.
1. Company
Depending on the scope of limited liability of shareholders to the company, the company can be divided into limited liability companies and joint-stock companies.
(1) Limited Liability Company
A Limited Liability Company (LLC), also known as a Limited Company, and the company is liable for the company’s debts with all its assets due to its separate legal identity. Its main feature is the limited liability of the shareholders, that is, the shareholders only need to be liable for to the extent of their subscribed capital contribution, without having to assume all the debts of the company.
It’s a popular choice for local and foreign investors. These companies can be privately (private company) or state-owned (state owned enterprise), offering flexible ownership options.
A China Limited Liability Company requires at least one shareholder, who may hold multiple roles within the organization.
- Advantages
A limited liability company is set up by more than one and less than fifty shareholders, and its organizational and management structure is relatively simple and its operating costs are low.
- Disadvantages
It is a closed company, unable to issue shares publicly, and the scope and scale of fund-raising is small, which usually makes it difficult to meet the needs of large-scale production and operation.
(2) Joint Stock Limited Company
A joint-stock company has its capital divided into equal shares, with shareholders liable only for their share contributions while the company assumes full responsibility for its debts.
This structure separates ownership from management, allowing for easy transfer of shares and facilitating capital expansion.
A joint-stock company can be established through initiation, where promoters subscribe to all shares at formation, or fundraising, where they subscribe to some shares and raise the rest from a targeted group or the public. To establish a joint-stock limited company in China, there must be 2 to 200 promoters, with over half residing in China.
- Advantages
Easy Transfer of Shares：Joint stock companies offer easy share trading for liquidity and reinvestment.
Growth and Expansion: By issuing shares and debentures, they raise substantial capital and secure loans for expansion
Transparency and Trust: This funding supports growth while mandatory financial disclosures enhance transparency and accountability, fostering stakeholder trust.
- Disadvantages
Complex Formation Process: Establishing a joint stock company is complex, requiring extensive documentation, approvals, and high costs for experts and registration.
Limited Confidentiality: it must disclose significant information to the registrar, making it publicly accessible. This requirement can limit a company’s ability to keep its operations confidential.
Complex Regulatory Compliance: Companies must comply with complex legal and regulatory requirements, with non-compliance leading to significant penalties. Filing annual reports and returns demands time and resources, raising costs.
Decision-Making Delays：Decision-making can be slow due to lengthy consultations and board discussions, and management costs are higher.
Despite these challenges, joint stock companies are ideal for large-scale, capital-intensive industries. Early-stage businesses may prefer a limited liability structure, with the option to convert to a joint stock company as they expand.
2. Partnership and Sole Proprietorships
Enterprises with unlimited liability of the contributors, which, depending on the form and number of contributors, are categorized as partnerships and sole proprietorship.
(1) Partnership
A partnership is a for-profit organization where partners share capital, operate jointly, and divide profits and risks. They bear unlimited joint liability for the business’s debts. Partnerships can be general or limited, depending on partners’ liability.
(i) General Partnership
In a general partnership, two or more partners share unlimited liability for the business’s debts.
A Special General Partnership, often used by professional service firms like accounting and law firms, involves some partners holding unlimited liability if debts arise due to intent or negligence, while others are only liable up to their investment. A General Partnership Entity (GPE) is a specific type where partners share both liability and management equally, making it ideal for small businesses where partners want shared control and responsibility.
(ii) Limited Partnership
A limited partnership consists of 2 to 50 partners, including both general and limited partners. General partners have unlimited liability for the partnership’s debts, while limited partners are only liable up to their capital contributions.
At least one general partner and one limited partner must always be present. If only general partners remain, the partnership must convert to a general partnership; if only limited partners are left, it must dissolve. Partners can include individuals, legal entities (enterprises), or organizations, but wholly state-owned companies, state-owned enterprises, listed companies, and public welfare institutions cannot serve as general partners.
Partnerships offer flexibility, simpler decision-making, and a lower tax burden, but general partners face high risks due to their unlimited liability for the business’s debts.
(2) Sole Proprietorship
A sole proprietorship is a business entity in which a natural person invests, the property is owned by the investor personally, and the investor bears unlimited liability for the debts of the enterprise with his personal property.
Its advantages and disadvantages are similar to those of a partnership, on the one hand, its establishment, operation and management procedures are relatively simple; on the other hand, the independently funded natural person is required to assume unlimited liability for the debts of the enterprise.
- Who Can Establish a Sole Proprietorship in China?
A sole proprietorship is the simplest business structure in China, run by a single individual who has full decision-making power. However, foreign nationals cannot directly establish a sole proprietorship; they must form a Wholly Foreign-Owned Enterprise (WFOE) or enter into a partnership.
Only Chinese citizens are permitted to create sole proprietorships. Foreign investors can access the Chinese market by forming a Joint Venture (JV) with a Chinese citizen or applying for a WFOE. Sole proprietors must obtain specific licenses and permits related to their business activities, but they cannot apply for an import and export license for international trade.
- Advantages
Tax Treatment: Neither partnerships or sole proprietorships pays enterprise income tax, they both enjoy simpler tax filing processes compared to corporations. However, partners and sole proprietors are responsible for personal income tax, with rates ranging from 5% to 35% based on profits.
- Disadvantages
Liability Issues: A major drawback is unlimited liability, exposing partners’ and sole proprietors’ personal assets in China come with notable business risks.
Struggle to attract investors: Investor interest is low due to the risk of unlimited liability, and transferring ownership requires unanimous partners’ consent. Limited partners also have little control over decisions.
Conclusion
For further information on Chinese company law, please contact us directly. Our team has extensive experience in corporate law and can provide a full range of legal services for your company in China.
Feel free to contact us if you need more information.
Saway Wang
Email: sawaywang@billionslawyer.com
Tel/Whatsapp: +86 18017682422
How to Start Your Import and Export Business in China
With a population of 1.4 billion, China presents immense opportunities for foreign investors, particularly in the import and export industry. China is a global economic leader and a prime destination for investors.
Setting up a trading presence in China is strategic for foreign companies, though the process can be complex. This guide will walk you through each step, ensuring your business is established smoothly and in full compliance with Chinese regulations.
1. Choose the Right Business Structure
When setting up an import-export business in China, choosing the right business structure is essential. Below are the key options available for foreign investors.
（1）Wholly Foreign-Owned Enterprise (WFOE)
A Wholly Foreign-Owned Enterprise (WFOE) in China is a business entity fully owned by foreign investors, either foreign individuals or companies. It is usually set up as a limited liability company (LLC) and can have one or multiple shareholders.
While a single-shareholder LLC can maximize the control over the company, we still recommend a multi-shareholder setup. According to Article 23(3) of the Company Law, if a single-shareholder LLC cannot prove its assets are separate from its shareholder’s own assets, the shareholder shall be liable for the company’s debts. A multi-shareholder structure offers better protection of the shareholder’s own property against business risks of the company.
- Benefits of a WFOE
Operate independently and engage in trade activities without the need for a local partner. It provides complete managerial and operational autonomy, enabling you to run your business according to your strategies and objectives. No restrictions like representative office.
（2）Joint Venture (JV)
A joint venture (JV) is a type of limited liability company where a foreign investor partners with a Chinese company. This arrangement allows foreign businesses to leverage local expertise and resources while sharing management responsibilities.
- Benefits of Joint Venture (JV)
A joint venture facilitates quick market entry in China by leveraging a local partner’s expertise, distribution networks, and sales channels, helping to overcome typical entry challenges.However, this approach also requires giving up some control to your partner.
（3）Representative Office (RO)
A Representative Office (RO) is a cost-effective choice mainly utilized for market research, promotion, and liaison activities. It enables you to establish a presence in China and cultivate relationships, but it cannot engage in direct profit-generating activities or conduct business transactions. This structure is ideal for companies seeking to explore the market or promote their products without immediate plans for direct trade.
- Benefits of Representative Office (RO)
Exploring market opportunities, particularly for small companies with limited budgets.
Assessing the potential for expansion into China without making a full commitment.
Creating a foundational presence for activities such as quality assurance and supplier communication.
2. Choose Your Company Name for Approval
The first essential step in registering a company in China is choosing a distinctive business name that aligns with Chinese naming conventions and accurately represents your brand. It’s important to ensure that your chosen name is not already in use or registered by another entity.
Once you’ve finalized your business name, you must submit it for approval to the State Administration for Market Regulation (SAMR). This process confirms that the name meets regulatory standards and does not conflict with existing trademarks. The SAMR will review your submission to ensure compliance, making this step vital for your company’s registration.
By carefully selecting and obtaining approval for your business name, you lay the groundwork for a successful registration while adhering to Chinese regulations. Working with an experienced consultant can further streamline this process, helping your business thrive in China’s dynamic economy.
3. Determine the legal representative, directors, supervisor, financial person
When registering a company in China, you must provide details for the legal representative, director, supervisor, and financial officer, including their name, ID or passport copy, and contact information.
The director and supervisor must be different individuals. According to the latest company law, for the small-size LLC or the LLC with a small number of shareholders, the company may not have a supervisor.
Furthermore, Chinese law mandates the appointment of a Chinese Finance Officer for foreign-owned businesses. This officer, who must be a Chinese national, will handle accounting tasks and report financial performance to the relevant government bureau.
4. Determine the registered address
When registering a company in China, a physical office isn’t required—you can use a virtual address. We offer a free virtual registered address with our company registration services.
However, import-export businesses seeking an export tax rebate will need a physical office, as tax authorities must verify your business’s physical presence to approve the rebate.
5. Preparing Essential Documentation
Previously, registering a company in China involved thorough preparation and the submission of essential documents, such as the Articles of Association, Shareholder Resolutions, and Board Resolutions, appointment letter, etc.
Now, the online registration system streamlines this process by automatically creating these documents based on the information you enter.
Nonetheless, we still advise drafting a comprehensive Articles of Association, as it outlines your company’s purpose, structure, governance, and operational procedures. This document specifies management roles and responsibilities and acts as the cornerstone of your company’s operations.
6. Register Your Company with SAMR
Most State Administration for Market Regulation (SAMR) offices in China now allow online company registration. However, if the shareholders are foreign, you should consult the local industry and commerce bureau to check if online registration is permitted. In Shanghai, foreign individual shareholders can usually register online if he or she has a real-name certified cell phone number and a personal bank card in China.
If online registration isn’t possible, you must submit offline registration documents for SAMR review. The SAMR will assess these documents for regulatory compliance. Once approved, you will receive your business license, allowing your company to operate legally in China and comply with local regulations.
7. Apply For Company Stamp
During incorporation, you must apply for a company seal and file it with the Public Security Bureau (PSB) at the same time. In China, these chops serve as your company’s official seal, similar to a signature in Western countries. Without a company chop, you cannot validate or execute contracts, making this registration crucial for ensuring your business transactions and legal documents are legally binding.
8. Open Bank Accounts of Company
Establishing the appropriate bank accounts is vital for effectively managing your company’s finances in China. Here’s a brief overview of the key accounts you’ll require:
（1）RMB Bank Account
This account is necessary for receiving payments in Chinese Yuan (RMB) and can also accept foreign currency deposits from international clients, following the bank’s guidelines for settlement.
（2）USD Bank Account
Open a USD bank account to facilitate transactions in U.S. dollars. This account makes it easy to accept and make payments in USD, enhancing your cross-border trade.
（3）Capital Bank Account
A Capital Bank Account is essential for receiving contributed capital from the shareholders’ overseas bank accounts.
9. Online Tax Registration
Once your company is registered and your bank account is established, the next step is to register with the local tax bureau and obtain a tax identification number.
Corporate Income Tax: This tax is imposed on profits at a standard rate of 25%. However, the corporate income tax can be reduced to as low as 5% under certain conditions.
Value Added Tax (VAT): VAT rates vary by industry and range from 1% to 13%.
10. Customs Registration
To conduct import and export trade, you must register as the import and export consignee and consignor in the China International Trade Single Window, also known as the Customs filing.
After registering, you’ll need to apply for an electronic port card, allowing you to perform various online operations for your trade activities.
11. Apply for Additional Licenses and Permits
Depending on the type of goods you plan to trade, you may need extra licenses or permits. For instance, importing food products requires food safety certifications, while hazardous materials need specific environmental permits. Additionally, selling hazardous chemicals requires a hazardous chemicals license.
12. Apply for Work Permit
After successfully registering your company, you can apply for work permits for your foreign employees. In China, foreign work permits are divided into three categories:
- Class A: High-end talents, with permits valid for up to five years.
- Class B: Professionals, with permits valid for up to two years.
- Class C: Other talents, which are subject to strict quotas.
Depending on the specific circumstances of your foreign workers, your company can apply for the appropriate work permits. This will ensure that your foreign employees are legally authorized to work in China and will simplify their entry and exit from the country.
Conclusion
By meticulously following these steps, foreign investors can successfully establish a compliant and operational export-import company in China. With a strong foundation in place, your business will be poised to thrive in China’s vast and dynamic market. Our expertise offers comprehensive support to meet all your business needs.
Feel free to contact us if you would like to know more information about starting your import and export business in China.
Besides, if you need other information about import and export information in the world, you can visit Globy.com, we also published our article in this platform.
Saway Wang
Email: sawaywang@billionslawyer.com
Tel/Whatsapp: +86 18017682422
How to Acquire Resident Permit in China Without A Job?
Exploring legal residence options for foreigners in China can be challenging without conventional pathways such as employment or family ties. However, establishing a company and applying for a work permit and residence permit presents a viable alternative.
By leveraging entrepreneurial endeavors, individuals can not only secure legal residency but also engage in business activities within China’s dynamic market. Collaboration with legal experts and thorough preparation are essential for meeting regulatory requirements successfully. Through strategic planning and adherence to relevant statutes, foreign individuals can realize their aspirations for long-term residency in China while contributing to its flourishing business environment.
Step 1: Register A Company
There are several notable advantages to applying for a visa through the establishment of one’s own company. Firstly, pursuing a visa in conjunction with company ownership offers a more pragmatic and rational approach, aligning one’s residency status directly with their entrepreneurial endeavors.
Secondly, the process of visa renewal is often streamlined and expedited for individuals who are registered business owners, facilitating smoother transitions and continuity of residency. Moreover, fulfilling certain predetermined criteria within the framework of business ownership can lead to eligibility for permanent residency status, providing a pathway to long-term settlement in the host country. You may have the following inquiries regarding the specifics of launching a company, such as
- Q1: Do expatriates need to be present during the process of starting a company? Can it be handled online?
Expatriates who possess a real-name certified cell phone number and bank card have the option to complete the process online.
- Q2: How long does it take for a foreigner to start a company in China?
Usually only about 2 weeks to register a company.
- Q3: Is it possible for a company to be established by a single individual?
The establishment of a company requires of three distinct roles:
Firstly, at least one shareholder, who may concurrently serve as the legal representative, is indispensable.
Additionally, a supervisor and an individual who is responsible for the financial matters of the company are imperative.
It is pivotal to note that the roles of supervisor and financial person must be held by distinct individuals, precluding the possibility of a single person occupying both positions. Furthermore, it is stipulated that the accountant person must not be a foreigner who cannot speak Chinese.
- Q4: Can we forgo the appointment of the supervisor?
Under the impending new”Company Law,” scheduled for implementation on July 1, 2024, a notable change pertains to the governance structure of limited liability companies with fewer shareholders.
Specifically, according to the revised provisions, smaller limited liability companies, characterized by a reduced number of shareholders, will have the option to forgo the appointment of a supervisor. This exemption is contingent upon unanimous consent among all shareholders.
- Q5: Is the registered capital required to be fully paid in at once?
According to the amended Company Law, effective from July 1, 2024, shareholders are mandated to fully pay up their contributed capital within five years from the company’s incorporation date, as stipulated in the company’s articles of association. This requirement replaces the previous provision under the current company law, wherein the payment of registered capital was not obligatory at the time of incorporation.
- Q6: What are the liabilities of shareholders?
Shareholders typically assume limited liability concerning the company’s debts, restricted to the extent of their subscribed capital contributions.
However, in cases where the sole shareholder limited liability company fails to demonstrate the autonomy of the company’s assets from the shareholder’s personal assets, the sole shareholder may be subject to joint and several liabilities for the company’s debts.
Consequently, we strongly advise registering a company with two or more shareholders to mitigate such risks and uphold prudent corporate governance.
- Q7: Do foreigners’ passports and other materials need to be notarized and certified?
In the company registration process, there is no requirement for notarizing or certifying passports or any other documentation. However, for the application of a work permit, it is mandatory to provide a non-criminal record and education certificate that have been notarized with apostille certification.
- Q8: Following the company’s successful registration, what additional tasks must be completed?
To establish your company effectively, several essential steps must be taken, including applying for an official seal, opening a company bank account, registering tax certificate, and engaging the services of an accountant to provide assistance with financial matters. These steps collectively ensure the smooth operation and compliance of your company with regulatory requirements.
Step 2: Apply for Work Permit
Upon successful registration of the company, individuals can proceed to apply for a work permit. It’s important to note that various categories of work permits entail distinct application requirements. Therefore, applicants should meticulously review and adhere to the specific prerequisites outlined for their respective work permit classifications.
- Q1: What type of work permit am I eligible to apply for?
In China, foreign workers are categorized primarily into three classifications:
Class A for high-end talents, Class B for professionals, and Class C for other talents. While a strict quota management system is commonly enforced for Class C individuals across most regions, the application process typically prioritizes Class A and B categories.
For Class A high-end talents, the option exists to apply for a work permit valid for up to five years, offering an extended period of employment eligibility.
Conversely, Class B professionals may apply for a work permit with a maximum duration of two years, providing flexibility within the regulatory framework for their employment arrangements.
- Q2: What’s the duration for work permit during the initial application, and is it possible to extend or renew afterward?
Under ordinary conditions, an initial period of six months is typically granted for the issuance of a work permit. However, in cases where the applicant exhibits high qualifications, an initial period of one year may be approved. Furthermore, renewal of the work permit can be sought up to 30 days before its expiration date, facilitating a smooth continuation of employment arrangements.
- Q3: What does the process entail when applying for a work permit?
When applying for a work permit from outside of China, the company initiates the process by submitting the application and relevant documents through the online Service System for Foreigners Working in China.
Subsequently, upon approval, the company receives the Notification Letter of Foreigner’s Work Permit. Foreign nationals utilize this notification letter to apply for a work visa in their respective country. Following the acquisition of the work visa and entry into China, individuals proceed to apply for the formal work permit.
- Q4: What is the typical timeframe required for completion?
The application process for the Notification Letter of Foreigner’s Work Permit typically involves a timeframe of approximately 5-10 business days for completion.
Similarly, the application for the formal work permit also requires a timeline of approximately 5-10 business days.
- Q5: Is it possible to apply for a work permit without possessing a bachelor’s degree or higher education, or evidence of relevant professional qualifications?
Certainly. As a shareholder in the company being registered, individuals have the opportunity to apply for a visa as an investor. Notably, this process does not necessitate the submission of additional documents such as diplomas, certificates, or employment contracts.
- Q6: Which documents are necessary for an investor’s application of work permit?
You need a copy of the original business license and other documents proving that you are an investor, passport, certificate of no criminal record and medical certificate.
- Q7: What are the drawbacks of seeking a work permit as an investor?
During the renewal process of a work permit, the entry and exit bureau conducts a comprehensive review to ensure the continued normal operation of the company and the ongoing status of the applicant as the company’s investor. The assessment of the company’s normal operation primarily focuses on the regular payment of Value Added Tax (VAT).
- Q9: What should an applicant do if uncertain whether the company will settle VAT within six months of the initial application?
We advise you to pursue the application for a work permit as an employee of your company. However, it’s important to note that the eligibility criteria typically require candidates to possess a bachelor’s degree or higher educational qualification, along with relevant work experience.
- Q10: Which documents are required when applying for a work permit as an employee?
The application for a work permit entails the submission of the following documents:
(1) Completed Application Form for Work Permit;
(2) Valid passport;
(3) Non-criminal record certificate;
(4) Certificate of highest academic qualification (bachelor’s degree or above) or other professional qualifications;
(5) Certificate of work experience covering the last two years;
(6) Employment contract;
(7) Medical certificate;
(8) Electronic photo;
(9) Original photo.
Step 3: Apply for Resident Permit
- Q1: Where can I apply for a residence permit? Can I apply online?
Residence permits are exclusively obtainable through in-person applications at the Immigration Office located within each district.
Unlike other processes, online applications are not available for residence permits, it requires applicants to submit their requests offline, in accordance with the prescribed procedures.
- Q2: What documents are required to apply for a work-related residence permit?
The essential documents are:
(1) original passport;
(2) work visa;
(3) temporary accommodation registration form;
(4) medical report;
(5) work permit;
(6) company application letter;
(7) individual application letter;
(8) company business license.
- Q3: What’s the typical duration taken to complete the process?
It normally can take up to 10 working days but in some cases two weeks.
- Q4: How long will I be granted for residence permit?
Normally the period will be the same with work permit
If you have any inquiries regarding the specifics of launching a company, please feel free to contact us.
Saway Wang
Email: sawaywang@billionslawyer.com
Tel/Whatsapp: +86 18017682422
What You Can, And Can’t Say in Advertisement in China?
KEY TAKEAWAYS
- Chinese Advertising Law strictly prohibits the use of absolute superlatives such as “the best” “world-leading” to promote ethical and honest advertising practices.
- It is prohibited to publicized false or misleading advertising and misrepresented product benefits, to protect consumers from deceptive marketing practices.
- It’s a gross violation of the law to harm the state’s dignity or interests, public interests, hinder social stability, impede public order, violate social morality, infringe personal rights in advertising.
- The law prohibits discriminatory content based on ethnicity, race, religion, or sexual orientation in advertisements and aims to promote inclusivity and respect for diversity within society.
INTRODUCTION
The Advertising Law lays down precise guidelines for advertising material in China’s ever-changing advertising practice across the industry, outlawing any statements that are deceptive, untrue, or detrimental to society. Companies operating in China should familiarize themselves with the requirements of the law as there are severe penalties for non-compliance. In order for businesses to successfully traverse this intricate regulatory prospect, we’ll examine the essential elements of the Advertising Law in this article.
1. Overview of Prohibited Contents in Ads
In China’s Advertising Law, the following content are strictly prohibited to ensure ethical and honest advertising practices:
（1）Using Absolute Superlatives
Ads cannot include phrases like “the most, best, highest, top level, top-tier, top1, only, first, sales champion, world-leading, industry leader, forever, national level, world level, world premiere“, etc. which suggest unrivaled
（2）False and Exaggerated Advertising
While advertising often involves exaggeration, this rule targets claims that are demonstrably false.
Case1: False Discount Claims
Recent cases have exposed businesses falsely claiming product price reductions, despite never offering the items at full price. Such misleading price tactics in advertisements are considered false under the Advertising Law and the Provisions on Administrative Penalties for Price Violations, leading to penalties.
Case 2: The company advertised its Anti-Pylori Probiotic Flash-Release Tablets with misleading claims about preventing periodontal disease and inhibiting Streptococcus pyogenes adhesion. However, the product had no such effects, leading to a fine of 100,000 RMB from the market supervision division.
（3）Unauthorized Use of State Authority
Ads must not falsely claim endorsement by, or covertly use the names or images of, state authorities or officials.
For example, “only for ABC national authority” or “endorsed by ABC national leader or ABC national authority,” or using an officer’s name in the advertisement.
（4）Content Restriction
Ads cannot contain obscenity, pornography, gambling, superstition, terror, or violence.
For instance, an advertising that features an erotic suggestion or a description of the body, or one that talks about God’s favors or better fortune.
For instance, a business that used images of zombies and dead bones in their ticket advertisement was fined RMB 8,000.
（5）Offenses Against State Dignity or Interests
Advertisements must not harm the state’s dignity or interests, such as by using an incorrect map of China that omits key areas like Taiwan, the South China Sea islands, or the Diaoyu Islands.Besides, the term of “Former French Concession” is also not allowed in the advertising, as it relates to an area in contemporary China that was leased to France under treaties considered unequal. It transcends mere geographical and cultural descriptors, carrying with it a specific political and historical connotation. The use of this term, along with the implications it bears, is seen as derogatory and harmful to the state’s dignity and interests, breaching the stipulations of the Advertising Law.ShackShack Case: on October 22, 2021, ShackShack was fined RMB 200,000 for releasing a poster that featured the term “Former French Concession.” The reason given was that the term was perceived as demeaning and oppressive by those who had firsthand knowledge of colonial history, undermining the nation’s dignity.
（6）Misuse of National Symbols
The use or covertly use of the national flag, nationalanthem, national emblem, military flag, military anthem, or military emblem of the People’s Republic of China is forbidden.Example: a company was fined RMB 450,000 for hanging Chinese national flag with its company logo on it on its business premises.
（7）Impede Public Order or Violate Social Morality
（8）Hinder Social Stability and Harm Public Interest
Example: A real estate company was fined RMB 20,000 for an ad urging home purchases during COVID-19 to avoid quarantine measures. The ad was deemed to create fear among the homeless and incite housing concerns, harming social stability and public welfare.
（9）Endanger Personal and Property Safety, and Infringe upon Personal Privacy
（10）Discriminatory Content
（11）Environment and Culture Harm
（12）Infringe Rights and Interests of Others
2. Justifying Claims
If an advertiser disagrees with the penalties levied by the Market Supervisory Bureau, they have the option to present supporting evidence (such as awards, certificates, and data) to substantiate their claims.
Should the Market Supervisory Bureau maintain its stance on the penalties, the advertiser can request an administrative reconsideration from a higher-level authority within the Bureau or pursue an administrative lawsuit.
3. Legal Protections Against False Advertising
Various legal protections are available to consumers in response to the problem of deceptive advertising. One such precaution is the option to file a complaint with the Market Supervision Bureau through the website https://www.12315.cn/ or by calling 12315. The advertiser will face the consequences detailed in the sentences that follow if it is discovered that the advertisement is false.
In addition, a consumer has the right to sue the advertiser to recover damages if they believe the advertisement caused them bodily harm or property damage. They can also register a complaint with the Market Supervision Bureau.
4. Penalties for False Advertising
In accordance with Chinese Advertising law and regulation, offenders of fraudulent marketing face specific punishments. Upon discovery of fraudulent advertisements, the Market Supervision Bureau mandates the cessation of dissemination and removal of the advertisement’s influence within the appropriate scope. Offenders are fined three to five times the advertising fee; in cases where the fee is indeterminable or notably low, fines range from RMB 200,000 to RMB 1 million.
For more serious or repeated offenses exceeding three instances within a two-year period, fines escalate to five to ten times the advertising fee. If the fee is minimal or unascertainable, fines range from RMB 1 million to RMB 2 million. Additionally, the Bureau retains the authority to revoke the offender’s business license and advertisement review and approval document, with no acceptance of further advert review applications.
Feel free to contact us if you have more questions about restrictions of advertisement in China.
Saway Wang
Email: sawaywang@billionslawyer.com
Tel/Whatsapp: +86 18017682422
How Much Severance Pay Am I Entitled To in China?
KEY TAKEAWAYS
1. The severance pay will vary between “N”, “N+1” and “2N” depending on the specific circumstances of termination.
2. “N” is calculated by multiplying the monthly average salary for the twelve months prior to terminating the labor contract with years of employment.
3. “N+1” = standard severance pay (N) plus one month’s average salary.
4. The severance pay is limited to three times the average monthly salary in the local area, with the calculation period capped at twelve years.
5. In addition to severance pay, you may also claim unpaid bonuses, commissions, overtime wages, wages for unused annual leave, compensation for refusing to sign a written labor contract, and compensation for non-competition if applicable.
6. Not all courts in China will uphold the termination of a foreigner’s contract. However, it is worth noting that the majority of courts do so, with the exception of the ones in Shanghai.
1. What does “N” stand for?
The term “N“ typically denotes standard severance pay. Article 47 of the Labor Contract Law (“LCL”) outlines that standard severance pay is calculated by multiplying the monthly average salary of the twelve months leading up to the termination of the labor contract by the length of employment. (“the monthly average salary of the twelve months leading up to the termination of the labor contract” hereinafter referred to as “average salary”)
If an employee has worked for less than six months, their severance pay will be calculated based on half a year; if they have worked for more than six months (including six months) but less than one year, their severance pay will be calculated based on one full year.
For example, the average salary amounts to CNY 10,000, with a working period of 3 years and 4 months. As a result, the corresponding severance pay of “N” is CNY 35,000.
Another instance shows an average salary of CNY 10,000 and a working period of 3 years and 9 months, leading to a severance pay (“N”) of CNY 40,000.
2. What does “N+1” refer to?
Article 40 of LCL mandates that employers must either provide one month’s prior notice to employees or pay one month’s salary as compensation in lieu of notice to terminate labor contracts legally and unilaterally. This implies that in the event of legal termination without one month’s prior notice, the employer must offer an additional one month’s salary as severance pay. Conversely, one month’s salary is not mandatory.
Therefore, “N+1” refers to the standard severance pay plus an additional month’s average salary (to compensate for the absence of a notice period).
For example. If the average salary is CNY 10,000, and the employee has worked for 3 years and 4 months. The severance pay of “N+1”=CNY 10,000×3.5+CNY 10,000 =CNY 45,000.
3. What does “2N” stand for
If the employer violates the law by terminating the labor contract, the employee has the right to either request the reinstatement of the labor relationship or demand that the employer pay double the standard severance pay, which is 2N.
For example, if the average salary is CNY 10,000 per month and the employee’s total working period is 3 years and 9 months, then the severance pay of 2N would equal CNY 80,000.
4. Scenarios for “N”, “N+1”, “2N”
For the sake of clarity, we provide the following summary of the scenarios pertaining to “N”, “N+1”, and “2N” as presented in our previous article:
- Scenarios for “N” or “N+1”
(1) Legal bilateral termination;
(2) Failure of renewal;
(3) Mass-layoff
(4) Bankruptcy, dissolution, cancellation;
(5) Employer’s legal unilateral termination (health issues or injury, incompetent in work, significant changes);
(6) The employee’s legal termination (ONLY “N”)
“N+1” only applies in situations where the employer fails to provides the employee with 30 days’ prior notice of termination.
“N” applies when the employer has given the notice period mentioned above, or when employees terminate the labor contract as per Article 38 of LCL.
- Scenarios for “2N”
As previously stated in our article, the employer is obligated to compensate the employee “2N” under the following circumstances:
(1) Terminating an open-ended labor contract by the employer (“open-ended labor contract” does not apply to foreign employees as the employment period can not exceed 5 years.)
(2) Dismissing a female employee during her pregnancy, confinement or nursing period.
(3) Dismissing an employee who suffers from sickness or non-work-related injury within the prescribed medical treatment period.
(4) Dismissing the employee who has worked in conditions exposing them to occupational disease hazards during employment without a pre-employment occupational health examination, or dismissing an employee suspected of suffering an occupational disease during the period of diagnosis or medical observation;
(5) Dismissing the employee who has been working for 15 years consecutively with the employer and will retire in less than five years; or
(6) Any other dismissal that is unlawful or prohibited by law.
5. Is there a limit for severance pay?
Certainly. Severance pay shall be capped at three times the local average salary where the employee’s average salary exceeds three times the average monthly salary of the previous year. Additionally, the calculation years of severance pay shall be limited to twelve years.
6. What else you may claim for?
- Unpaid bonus,allowance, commission, etc.
As long as these are agreed in the labor contract or other agreement.
- Overtime wage
Overtime wage on working days = hourly wage x overtime hours x 1.5
Overtime wage on weekend = daily wage x overtime days x 2
Overtime wage on statutory holiday = daily wage × overtime days ×3
- Wages for unused annual leave
Wages for unused annual leave=daily wage × overtime days ×3
- Compensation for failing to sign a written labor contract
If the employer fails to sign a written labor contract within the period of more than one month but less than one year, it has to compensate the employee double salaries every month (generally capped at 11 months).
- Compensation for non-competition
Only when the employer and employee have entered into a non-competition agreement.
7. Will the court uphold the severance pay of a foreign employee?
- Judicial Practice of Shanghai
(1) In the event that both parties have expressly agreed in the labor contract that the foreign employee is entitled to severance pay, the Shanghai courts will uphold the severance pay as per the Answers of Shanghai High People’s Court to Several Issues Concerning the Trial of Labor Dispute Cases (“ALDC”);
(2) Otherwise, most Shanghai court may not uphold the severance pay pursuant to the ALDC as they believe that foreigners are not eligible to apply the LCL since there are no laws explicitly stating that foreigners can apply the LCL.
Therefore, it is highly advised that foreign employees negotiate with their employer to cover a severance payment clause in the labor contract.
- Judicial Practice of Beijing, Guangzhou, Jiangsu, Zhejiang
Courts in Beijing, Guangzhou, Jiangsu, and Zhejiang province typically support the severance of foreign employees by arguing that the Administrative Provisions on Employment of Foreigners in China do not grant foreigners an exemption from the LCL. Thus, foreigners are eligible to cite the LCL.
Q&A
Q： How should I claim for severance pay?
A： You can initiate a labor arbitration procedure at the Labor Dispute Arbitration Committee where the labor contract is implemented or where the employer is located. For foreign employees in Shanghai, the labor arbitration procedure must be commenced at the Shanghai Municipal Labor Dispute Arbitration Committee.
Q： If I’m not satisfied with the arbitration verdict, what should I do?
A： You may file a lawsuit in court. Otherwise, the arbitration verdict will be enforced. When you are unsatisfied with the court judgment, you may initiate a second instance by submitting an appellate petition.
Q： If the employer fails to comply with the verdict or judgment, what should I do?
A： The employee may apply for enforcement once it takes effect.
If you would like us to assess whether you are entitled to severance pay, please feel free to contact us.
Saway Wang
Email: sawaywang@billionslawyer.com
Tel/Whatsapp: +86 18017682422
Am I Entitled to Severance Pay in China?
KEY TAKEAWAYS
(1) The employee is entitled to severance pay (“N” or “N+1”) under the circumstances of legal bilateral termination, failure of renewal, mass-layoff, bankruptcy, dissolution, health issues or injury, incompetency, significant changes.
(2) The employee is entitled to “2N” of severance pay when the employer’s termination is not permitted under the law or violates the law.
(3) Even if the termination is initiated by the employee, the severance pay (typically “N”) shall be paid by the employer in the event of the employer’s termination of open-ended labor contract, failure of paying remuneration or social security premiums and the employer’s fraud, coercion, violence or other conducts contrary to laws and regulations.
1. When You Are Entitled To Severance Pay?
Under Article 46 of the Labor Contract Law of PRC (“LCL”), the employer may terminate the labor contract but has to pay severance pay to the employee in the following circumstances:
- Legal Bilateral Termination (Article 36 of LCL)
When a company desires to terminate the labor contract, the LCL allows the company to enter into a mutual agreement with its employee on termination of employment relationship.
In such circumstance, a severance package (normally “n” or “n+1”) shall be involved in this termination agreement. The bilateral termination agreements are often used in the event of downsizing as it may avoid conflicts between both parties and legal costs for the potential legal proceedings.
- Failure of renewal
When a fixed-term employment contract expires, and the employer is not satisfied with the employee’s performance, it may choose not to renew the contract. However, a severance (typically “n” or “n+1”) has to be paid by the employer.
This rule changes when the second fix-term contract expires, in which case the contract becomes an open-term labor contract, and the employ has no right to not renew the contract, otherwise, it shall pay a severance of “2n” to the employee.
- Mass-layoff (Article 41 of LCL)
Under Article 41 of LCL, a mass-layoff refers to the collective termination of more than 20 employees or 10% of the total employees. A legal mass-layoff requires notification and explanation to labor union and all employees in advance, report to the labor administrative department for review.
Without the above procedures, the mass-layoff will be deemed as illegal termination which means the employee will likely be entitled to severance pay of up to “2N”. If the mass-layoff is approved by the labor administrative department, the employer still has to pay severance (normally “N” or “N+1”) to all the employees who were terminated.
- Bankruptcy, dissolution, cancellation
When the labor contract is terminated due to the employer’s bankruptcy, dissolution and cancellation, the employee is entitled to “N” or “N+1” of severance pay (Cause 4 and 5, Article 44 of LCL).
- Employer’s legal unilateral termination
The LCL (Article 40) allows the employer, in any of the following circumstances, to lawfully terminate the labor contract by either sending the employee a written notice 30 days in advance and paying severance of “N” or paying severance of “N+1” instead of 30 days’ written notice in advance:
(1) Health issues or injury:
A worker suffers from an illness or a non-work-related injury and, after the expiry of the prescribed medical period, is unable to fulfil his/her original work or fulfil the work that has been otherwise arranged by the employer;
(2) Incompetent in work
A worker is incompetent in performing his/her work and remains to be incompetent in performing the work after training or adjusting the position; e.g. the employee fails to meet the standard of performance appraisal for several times.
(3) Significant Changes
The objective circumstances under which the labor contract was concluded have significantly changed (e.g. enterprise migration, department abolishment), making it impossible to perform the contract, and the employer and the employee fail to reach a mutual agreement on changing the contents of the labor contract after negotiation.
- Employer’s illegal unilateral termination
The employer’s illegal unilateral termination will make the employee entitled to a severance pay of “2N”, and it refers to the following circumstances:
(1) Termination of an open-ended labor contract by the employee;
An open-ended labor contract has no expiration date and will continues until either the employer or the employee terminates the contract. If the employer and employee have entered into two consecutive fixed-term labor contracts, or if the employee has worked continuously in the company for 10 years, regardless of the labor contract, the employer and employee will automatically enter into an open-ended labor contract.
(2) Dismissing a female employee during her pregnancy, confinement or nursing period;
(3) Dismissing an employee who suffers from sickness or non-work-related injury within the prescribed medical treatment period;
(4) Dismissing the employee who has engaged in work exposed to occupational disease hazards during employment without a pre-employment occupational health examination, or dismissing an employee suspected of suffering an occupational disease during the period of diagnosis or medical observation;
(5) Dismiss the employee who has been working for 15 years consecutively with the employer and will retire in less than five years;
(6) Any other dismissal that is unlawful or prohibited by law.
2. When You Are NOT Entitled To Severance Pay？
However, the severance pay shall not be payable in the following circumstances:
(1) The employee does not satisfy the recruitment criteria during the probationary period;
(2) The employee commits serious violation of the company rules and regulations.
(3) The employee commits gross negligence in duties or malpractice, thus causing significant damage to the employer;
(4) The employee simultaneously works for another company without consent of the current employer, which seriously affects the fulfillment of the current employer’s work tasks, or who refuses to rectify the situation upon the employer’s request;
(5) Where the labor contract is rendered void under the circumstances stipulated in item (1) of the first paragraph of Article 26; or
(6) The employee has been held criminally liable pursuant to the law.
3. Are You Entitled To Severance Pay Even If The Termination Is Initiated By Yourself.
Under Article 38 of LCL, the employee is also entitled to severance pay of “N” even if the termination is initiated by the employee in the following circumstances:
(1) The employer fails to provide labor protection or working conditions as defined in the labor contract
(2) The employer fails to pay remuneration in full and on time;
(3) The employer fails to pay social security premiums for employees;
(4) The rules and procedures of the employer are contrary to laws and regulations to the detriment of the employee’s rights and interests.
(5) The employer induces the employee enter into the labor contract against the employee’s true intention by illicit means such as fraud, coercion, or taking advantage of the employee’s unfavorable position, which ultimately leads to the invalidity of the labor contract;
(6) If an employer forces an employee to work by means of violence, threat or unlawful restriction of personal freedom, or if an employer violates the safety regulations and instructs an employee to engage in hazardous work and that jeopardizes the employee’s personal safety, the employee may terminate the employment contract immediately without prior notice to the employer.
(7) Other circumstances stipulated by laws and regulations.
If you would like us to assess whether you are entitled to severance pay, please feel free to contact us.
Saway Wang
Email: sawaywang@billionslawyer.com
Tel/Whatsapp: +86 18017682422
How Can A Company Deal With Counterfeit Products in China?
Consumers and manufacturers are facing a growing problem of counterfeits in China. Counterfeits not only deceives consumers but also threaten brand manufactures. It leads to sales decrease, reputation damage, market chaos for brand manufactures. This article will offer some legal strategies for manufacturers to combat counterfeits and protect their own products.
1. Registering Trademark and Patent is The First Step
- Trademark
A trademark is a distinctive word, graphics, logo, letters, three-dimensional sign, numbers, color combinations and sounds that is used to identify a particular product or service and which serves to distinguish it from its competitors.
In China, trademarks are generally protected through registration, following an application filed with the Trademark Office of China National Intellectual Property Administration (Online Application Website: https://sbj.cnipa.gov.cn/sbj/wssq/).
Registration entitles the registrant to legally and exclusively own all the trademark rights, and to prevent anyone from using the trademark on the same or similar products without the registrant’s consent. Otherwise, the infringer will be liable for unauthorized use (compensation, penalties, etc).
- Patent
A patent is an exclusive right granted for an invention, utility model or appearance design. It refers to a new technical solution or a practical design for a product, process, or improvement thereof.
Same as trademark, registering a patent in the Patent Office of China National Intellectual Property Administration (Online Application Website: https://cponline.cnipa.gov.cn/), confers exclusive rights on the Patentee. In other words, once the patent granted, the Patentee can stop anyone from making, using, selling, offering for sell, or importing the product or technology in which the patents are held.
2. Preserving Evidence Will Give Your Company an Edge
When counterfeits are discovered on the market, the most urgent step is to preserve and notarize the evidence in order to avoid the infringer destroying the counterfeits before we take legal action.
In this case, you can buy the counterfeit products under the witness of a notary and with a video recording of the whole process, and keep the counterfeit product, contract or purchase order, invoice, payment slip. The final notarial certificate can be used as evidence.
3. Complaints to the Market Supervisory Administration are the Most Time-saving and Cost-effective Way
Market Supervisory Administration is the official authority that regulates protection and infringement of intellectual property. When counterfeits are found, anyone can report them to the local Market Supervisory Administration through the hotline number 12315 or the official website: https://www.12315.cn/ for complaints.
Once the infringement is recognized by the Market Supervisory Administration, the infringer will be required to immediately stop the infringements, destroy all counterfeits and pay a fine. In the case of a serious infringement, a criminal penalty (a fixed-term imprisonment) might also be imposed on the infringer.
4. Filing a Lawsuit is Also the Most effective Way
Irrespective of the penalty imposed on the infringer, it is vital for the brand manufacturer to make up for the loss of revenue and reputation resulting from the infringement. If the infringer refuses to pay any compensation, the brand manufacturer will have to file a lawsuit in Intellectual Property Court.
- How much compensation can the infringed party claim for?
(1) Either the actual losses suffered by the infringed party or the actual interests obtained by the infringer as a result of the infringement.
(2) If neither the actual losses nor interests can be determined, the compensation shall be the reasonable multiplier of the royalty of the trademark or patent.
(3) If the infringement is intentional and serious, the compensation may be determined at not less than double and not more than five times the amount determined in accordance with the above method.
(4) The compensation may also include reasonable expenses incurred in preventing infringements, such as notarization fee, certification fee, lawyer’s fee, investigation fee, translation fee, etc.
5. Other Simple Strategies for Counterfeits
- Complain to the e-commerce platform where the counterfeits are sold:
Many well-known e-commerce platforms have set up an intellectual property protection and complaint channel. The Intellectual Property Protection Platform of Alibaba is one of such channel, which aims to provide a channel for complaints and resolution of IP disputes.
- Adopt anti-counterfeiting measures:
In a nutshell, anti-counterfeiting is the application of covert or overt protection measures on packaging, authentication certificates, or directly on the products themselves. These measures often include technology to track, trace, and verify the authenticity of an item. With anti-counterfeiting measures in place, the consumers can distinguish the counterfeits and counterfeiters won’t be able to trick consumers into believing that items are authentic.
If you need more information about how to deal with the counterfeit products in China, please feel free to contact us.
Saway Wang
Email: sawaywang@billionslawyer.com
Tel/Whatsapp: +86 18017682422
All You Need to Review When Signing A Contract
Contracts are a ubiquitous part of daily life, providing the framework for parties to fulfil their obligations and settle disputes. However, failing to review a contract thoroughly can lead to trouble. Pay careful attention to the terms and conditions, including any limitations, warranties, or obligations stated. Seek legal advice if necessary to ensure clarity and protect your interests. This article presents key considerations for reviewing a contract. It also shares some useful Chinese websites to help you learn more about your counterparty.
1. Verify the eligibility of the counter party
(1) Identity information
- For a natural person, it is necessary to review his/her original ID card or passport and confirm the information matches that on the contract.
- For a Chinese company, we’d better confirm whether the company has been legally and validly registered through the official website of National Enterprise Credit Information Publicity System: https://www.gsxt.gov.cn/index.html.
(2) Litigation or enforcement status
If the counter party is involved in litigation or enforcement, its capacity to fulfil the contract will be significantly affected. Here we share the following websites to confirm the counter party’s litigation or enforcement status:
- Enforcement Status:
China Enforcement Information Public Website (http://zxgk.court.gov.cn/), an official website operated by the Supreme People’s Court of The People’s Republic of China, in which you can check whether the counter party is executed by the court for failing to perform the judgment.
- Litigation Status:
Qichacha (https://www.qcc.com/) or Tianyancha (https://www.tianyancha.com/), a website operated by the private entities, in which you may check whether the counter party (only for company) has any relevant litigation cases.
2. Ensure the validity of the contract
(1) Confirm the counter party’s qualification
Qualification determines whether the contract is valid, invalid or pending effectiveness. For example, if the contract is signed by the counter party who is under 18 years old, then the contract will take effect when his/her statutory guardian recognizes the contract retroactively. Another example, if the contract involves the sale of medicine and neither party to the contract has a license to sell medicines, thus the contract will be void.
(2) Confirm the deputy’s authorization
Make sure that the deputy of the company who signs the contract on behalf of the company has the authorization to do so. Otherwise, the contract will only take effect upon the company’s retroactive recognition of the contract. However, if there is reason to believe that the deputy had authorization, the contract will remain valid.
(3) Confirm the transaction’s legality
The contract will be deemed invalid if its object is illegal or prohibited for trading. For instance:
- In China, Land ownership, drugs, obscene goods are prohibited for transaction, and cigarettes, tobacco, salt, guns are restricted for transaction (only can be exchanged by the specific entity who has the qualification).
- If the service content involves assisting in the theft of personal information, the service contract is considered invalid as it violates mandatory laws.
3. Confirm the ownership
Before entering into an agreement for the purchase of an asset, it is crucial to review whether the asset is legally and validly owned or registered in the name of the seller. This ensures that the transaction is conducted in a legally sound manner. Here we’ll share several ways to confirm the ownership:
（1）Real estate
Review the title deed of the real estate, and also request the owner to obtain the updated real estate information page of the real estate from the local Real Estate Exchange Center or on its official website (in Shanghai, the official real estate information can be obtained from the website of “一网通办”) .
（2）Cars
Review the ownership certificate of the car, and also ask the owner to obtain the updated property information page of the car at the local Vehicle Management Office.
（3）Shares
Verify the relevant information on the official website of National Enterprise Credit Information Publicity System: https://www.gsxt.gov.cn/index.html
（4）Trademark
Verify the relevant information on the official website of Trademark Office of China National Intellectual Property Administration: https://sbj.cnipa.gov.cn/sbj/sbcx/
（5）Patent
Verify the relevant information on the official website of Patent Office of China National Intellectual Property Administration: https://pss-system.cponline.cnipa.gov.cn/conventionalSearch
（6）Copyright
Verify the relevant information on the official website of Copyright Protection Center of China: https://register.ccopyright.com.cn/query.html
4. Quality Standards
(1) Clarify quality standards
Specify the quality standards as explicitly as possible:
- For a purchase agreement, include the brand, origin, type, texture, color, size, ingredient, package, function, quantity and weight.
- For a service agreement, include the quality standards can be the detailed service results, effect and characteristics of the deliverables, etc.
(2) Set quality guarantee deposit
Quality guarantee deposit is the retention payment set for ensuring the quality standards to be satisfied. Generally, it’s 5-10% of the total price, and is paid after a certain duration, allowing the buyer to refuse payment if the product has any quality issues during this time.
E.g. The buyer shall paid 10% of the total price as quality guarantee deposit within 10 working days after 2 years of delivery.
(3) Acceptance
Typically, both parties will need to inspect the deliverables and confirm whether they satisfy the quality standards after delivery, this process is called “acceptance”. However, there is another scenario where the quality standards have been met but the receiving party fails to confirm the acceptance. In such case, a “deemed acceptance clause” can be helpful.
E.g. Party A shall inspect the Products within 3 working days of delivery. If the Products meet the quality standard, Party A shall sign the acceptance confirmation. If Party A believes that the Products have quality problems after acceptance, it shall notify Party B in due time. If Party A neither signs the acceptance confirmation nor raises any objection to the Product, it shall be deemed that Party A has accepted the Product.
(4) Quality Remedy
Quality remedy is the resolution for quality problems. For instance, when the product has any quality problems, the buyer may require the seller to repair, return or exchange the product according to the contract.
5. Payment Term
(1) Amount
Firstly, the total price and unit price shall be clearly prescribed in the contract, including whether the tax is included or not. Additionally, it is important to specify the currency (e.g. CNY, USD) and corresponding exchange rate. For international trade, it may be necessary to include terms such as CIF or FOB.
(2) Payment Time
As to the payer, we suggest implementing an installment plan with specific payment conditions to reduce the risk of non-performance by the payee.
E.g. Party A shall make a down payment of 20% of total price, followed by a payment of 50% of the total price upon completion of the service by Party B, and finally a payment of 30% of the total price upon Party A’s acceptance.
As to the payee, we suggest setting the liquidated damages for the payer’s delayed payment.
E.g. The payer shall pay the payee 0.05% per day of the outstanding payment to the payer for delayed payment.
6. Ensure Deliverables On Time
Similarly, to ensure timely delivery of the deliverables, we can employ liquidated damages for late delivery in the contract. If delivery is in instalments, we must specify the detailed delivery time for each instalment.
7. Circumstances of Termination
Based on the Civil Code of PRC, both parties may terminate the contract under the following circumstances:
- Both parties agree on termination;
- Force majeure;
- One party expressly states or indicates that it will not perform its principal obligation prior to the expiration of the performance period;
- One party fails to perform its obligation;
- One party violates the contract rendering it impossible to achieve the purpose of the contract. Except that, both parties may also agree on other circumstances of termination in the contract.
In addition to the aforesaid circumstances, both parties may also define further circumstances of termination in the contract.
E.g. In the event that Party B is declared bankrupt, its business license is revoked, liquidated, dissolved, or enters these procedures; or Party B’s major property is seized, or other preservation measures are taken, Party A may terminate the contract.
8. Liquidated Liabilities
Although the Civil Code of the PRC provides that the defaulting party shall continue to perform the contract, remedy the breach or compensate for losses when it breaches the contract, this provision is not explicit enough. Including a specific amount or percentage for liquidated damages (e.g. 20% of the total price) or a specific compensation for losses caused by the breach (e.g. lawyer’s fee, notarization fee, guarantee fee, translation fee, etc) in the contract will help the aggrieved party to obtain greater compensation.
9. Applicable Law and Court
The applicable law and court can only be the one which has the closed connection with the case. This connection can be established by the location of one party or the place where the contract is signed or performed. For instance, if the contract is signed and performed in China, then both parties may choose Chinese law and Chinese court as the applicable law and court.
Additionally, arbitration may be a suitable alternative for dispute resolution due to its confidentiality and flexibility. Shanghai International Economic and Trade Arbitration Commission (SHIAC) and China International Economic And Trade Arbitration Commission (CIETAC) are both commonly selected by the parties.
Saway Wang
Email: sawaywang@billionslawyer.com
Tel/Whatsapp: +86 18017682422
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