How to Set Up a Company in China: Legal Guide for Foreign Investors (2026 Update)

Introduction: China remains one of the world’s largest investment destinations for international businesses. Many foreign investors choose to set up a company in China, most commonly through a Wholly Foreign-Owned Enterprise (WFOE). Understanding Chinese company law, foreign investment rules, and corporate governance requirements is essential for successfully operating a business in China. This guide explains the key legal issues foreign investors should consider when establishing and operating a Chinese company.

Following the enactment of the Foreign Investment Law in 2020, foreigners and foreign entities (collectively referred to as “Foreign Investors”) are allowed to establish and own 100% equity in a limited liability company in China, commonly known as a Wholly Foreign-Owned Enterprise (WFOE). Foreign investors generally enjoy the same rights and obligations as domestic investors, subject to certain sectoral restrictions.

In recent years, China has continued to improve its foreign investment regime and corporate governance framework. In particular, the newly revised PRC Company Law adopted in December 2023 and effective from 1 July 2024 introduces significant changes regarding capital contribution obligations, corporate governance structures, and directors’ duties.

As more foreign investors continue to invest in China, this article provides practical guidance on establishing and operating a Chinese company from a legal perspective.

I. Negative Lists

Before making an investment in China, foreign investors should review the following lists issued and updated periodically by the National Development and Reform Commission (NDRC) and the Ministry of Commerce (MOFCOM):

1. Foreign Investment Negative List

Formally known as the Special Administrative Measures for Access of Foreign Investment (Negative List), this list specifies sectors where foreign investment is restricted or prohibited, including restrictions on shareholding ratios or management requirements.

Industries not included in the Negative List are open to foreign investors under the principle of national treatment.

2. Market Access Negative List

The Market Access Negative List applies to all market participants, including both domestic and foreign investors. It identifies sectors that are either:

• Prohibited— entry is not allowed
• Restricted— entry requires administrative approval or licensing

The Foreign Investment Negative List applies only to foreign investors, whereas the Market Access Negative List applies to all investors.

China periodically reduces the number of restricted sectors to further open its economy. As of recent updates, most industries are open to foreign investment, though investors should still conduct legal due diligence before entering any regulated industry.

II. Company Types and Single-Shareholder Companies

Under the PRC Company Law, there are two primary corporate forms:

1. Limited Liability Company (LLC)
2. Joint Stock Limited Company (JSLC)

The limited liability company remains the most common structure for both domestic and foreign investors. An LLC must have at least one shareholder and no more than fifty shareholders.

A joint stock limited company may have up to 200 shareholders unless it becomes publicly listed.

Unless otherwise specified, the term “company” in this article refers to a limited liability company.

Single-Shareholder Company

Foreign investors frequently establish companies with a single shareholder structure, commonly referred to as a single-shareholder company.

Under the revised Company Law:

• A company may have one shareholder, either an individual or a legal entity.
• The previous restriction that a natural person may only establish one single-shareholder companyhas been relaxed under the new Company Law framework.

However, the principle of corporate asset independence remains critical.

If the shareholder cannot prove that the company’s assets are independent from the shareholder’s personal assets, the shareholder may be held jointly and severally liable for the company’s debts.

Therefore, proper financial and accounting separation between the shareholder and the company is essential.

Requirements for Company Establishment

To establish a limited liability company in China, the following conditions must generally be met:

1. Shareholders

The company must have at least one shareholder and no more than fifty shareholders.

2. Registered Capital Subscription

Shareholders must subscribe to registered capital in accordance with the Articles of Association (AoA). Under the revised Company Law, capital contribution must generally be fully paid within five years after the company’s establishment, unless otherwise provided by law for specific industries.

3. Articles of Association

The company must adopt Articles of Association, which should include key matters such as:

• Company name and domicile
• Business scope
• Registered capital
• Shareholders and capital contributions
• Governance structure
• Legal representative
• Other operational rules

4. Company Name

A typical company name usually consists of:

City name + brand name + industry description + “Limited Company”

Example: Shenzhen XXX Technology Co., Ltd.

5. Registered Address

The company must have a registered domicile within China, typically supported by:

• property ownership certificate, or
• lease agreement with the landlord.

III. Company Registration Procedure

In major Chinese cities such as Shanghai, Shenzhen, or Beijing, company incorporation procedures are now highly streamlined and digitalized.

Typically, the process includes:

1. Company name approval
2. Submission of incorporation documents to the market supervision authority
3. Issuance of business license
4. Company seal (chop) engraving
5. Bank account opening
6. Tax registration

In many cases, company establishment can be completed within a few working days if the business does not fall into a restricted industry.

IV. Registered Capital

China adopts a registered capital subscription system.

Unlike the previous regime requiring immediate capital payment, shareholders may subscribe capital contributions and pay them within a specified period stated in the Articles of Association.

Important Update under the New Company Law

Under the 2023 revised Company Law, shareholders of a limited liability company must fully contribute their subscribed capital within five years from the company’s establishment, unless otherwise provided by special regulations.

Existing companies established before the implementation of the new law may need to adjust their capital contribution schedule during the transition period.

Practical Considerations

Although there is generally no statutory minimum registered capital requirement for most industries, registered capital should be determined prudently because:

• subscribed capital constitutes a legal obligation of shareholders
• higher capital may increase business credibility
• insufficient capital may affect operational funding.

Foreign investors should also consider foreign exchange control regulations when determining the capital amount.

V. Legal Representative

The legal representative is the individual authorized to represent the company externally.

Under the Company Law, the legal representative may be:

• the chairman of the board,
• an executive director, or
• the general manager, depending on the company’s Articles of Association.

The legal acts conducted by the legal representative generally bind the company.

Practical Risks

In China, the legal representative may face certain administrative restrictions if the company becomes subject to enforcement proceedings and fails to comply with court orders. These restrictions may include:

• travel restrictions (including high-speed trains or flights)
• limitations on high consumption activities
• restrictions on leaving China in certain cases.

Therefore, selecting a suitable legal representative is an important strategic decision for foreign investors.

VI. Corporate Governance

Under the revised Company Law, corporate governance structures have become more flexible.

A company may establish the following bodies:

• Shareholders’ meeting
• Board of directors (or executive director)
• General manager
• Supervisory board or supervisor

Simplified Governance for Small Companies

For small or closely held companies, simplified structures are allowed:

• one executive director instead of a board of directors
• one supervisor instead of a supervisory board

Under the new Company Law, certain companies may dispense with the supervisory board and instead establish an audit committee within the board of directors.

Duties of Directors and Senior Management

The revised Company Law strengthens fiduciary duties of directors, supervisors, and senior management, including:

• duty of loyalty
• duty of diligence

They may be personally liable if they cause damage to the company through misconduct or breach of duties.

VII. Fapiao (VAT Invoice)

A Fapiao refers to an official Value Added Tax (VAT) invoice issued under the supervision of the Chinese tax authorities.

Fapiao serves both as:

• a tax reporting document, and
• a valid accounting voucher.

There are two major categories:

1. General VAT Invoice
2. Special VAT Invoice

Special VAT invoices allow businesses to credit input VAT against output VAT.

Fapiao must be issued through the official tax system and cannot be replaced by ordinary receipts.

VIII. Foreign Exchange (Forex)

Foreign exchange matters in China are regulated by the State Administration of Foreign Exchange (SAFE).

Once a WFOE receives capital contributions from foreign investors, the funds may be:

• converted into RMB, or
• retained in foreign currency.

The funds must be used within the company’s business scope and in compliance with foreign exchange regulations.

Certain activities are prohibited, such as:

• investment in securities (except certain low-risk financial products)
• lending to non-affiliated entities
• purchasing real estate for non-operational purposes.

Companies may repatriate dividends or profits to overseas shareholders after:

• tax clearance
• completion of profit distribution procedures.

IX. Employment

Employment relationships in China are governed primarily by the Labor Contract Law.

Employers must sign a written employment contract within one month of the employee’s start date. Failure to do so may result in double salary liability for up to 11 months.

Types of Employment Contracts

• Fixed-term contracts
• Open-term (indefinite) contracts

If an employee has completed two consecutive fixed-term contracts, the employer may be required to offer an open-term contract.

Probation Period

Only one probation period may be agreed with the same employee.

Probation periods are subject to statutory limits depending on contract length.

Social Insurance

Employers in China must contribute to the social insurance system, which includes:

1. Pension insurance
2. Medical insurance
3. Work injury insurance
4. Unemployment insurance
5. Maternity insurance

Both employers and employees must contribute, and this obligation cannot be waived by agreement.

Foreign employees may also be required to participate unless exempted under bilateral social security treaties.

X. Dispute Resolution

China provides several mechanisms for resolving commercial disputes:

Lawyer Letters

A lawyer may issue a demand letter or lawyer letter requesting the other party to perform contractual obligations.

Mediation

Mediation is widely used in China and can occur through:

• community mediation committees
• professional commercial mediation institutions.

Arbitration

Arbitration is often preferred for international disputes due to flexibility and enforceability under the New York Convention.

Litigation

China operates a four-tier court system:

• Basic People’s Courts
• Intermediate People’s Courts
• Higher People’s Courts
• Supreme People’s Court

Most commercial cases start in Basic People’s Courts.

China follows a two-instance final system, meaning a case generally has:

• one first-instance trial
• one appeal.

XI. Statute of Limitations

The general statute of limitations for civil claims in China is three years, starting from the date when the claimant knew or should have known that their rights were infringed.

Failure to bring a claim within this period may result in the court refusing to support the claim.

FAQ: Setting up a Company in China

Can a foreigner own 100% of a company in China?

Yes. Under China’s Foreign Investment Law, foreign investors can establish a Wholly Foreign-Owned Enterprise (WFOE) in most industries unless restricted by the Negative List.

How long does it take to set up a company in China?

In major cities such as Shenzhen or Shanghai, company registration can typically be completed within 5-10 working days, depending on the industry and documentation.

Is there a minimum registered capital requirement in China?

Most industries do not have a statutory minimum capital requirement. However, under the revised Company Law, shareholders must fully contribute their subscribed capital within five years.

Can a foreigner be the legal representative of a Chinese company?

Yes. There is no nationality requirement for the legal representative, although practical considerations such as presence in China may be relevant.

Author: Jay Chen

Jay Chen is a China-qualified lawyer based in Shenzhen and recognized as a Leading International Lawyer by the Shenzhen and Guangdong Lawyers Association respectively. He advises multinational companies and foreign investors on:

• China market entry
• WFOE establishment
• cross-border investment
• international commercial disputes

Learn more at www.bizlawyerchina.com