The pros and cons of a Joint Venture in China
Joint Venture is one of the most common routes and prompt profitable methods for structuring foreign investment into China. The Joint Venture benefits the foreign investors from various resources of the Chinese partner such as the existing network in local market, knowledge of local culture and insight of local practice.
However, the objectives and intentions of setting up the Joint Venture might be only temporally the same for both partners. The goals and expectation for the Joint Venture of both partners might differ as situation changes. Disputes might inevitably arise frequently.
Strategy for a Joint Venture
Successful operation of a Joint Venture depends on the clear understanding of the respective goal and intention of both partners. Mutual understanding of the expectation and aspiration for the Joint Venture will endeavor both partners to develop a mutual beneficial business operation.
When objectives of both partners are reached and the foreign investors are familiar with law, culture and practice of China, the Joint Venture can be dismantled or transformed to a Wholly Foreign Owned Enterprise.
Types of Joint Ventures in China
There are two types of joint ventures in China: the Equity Joint Venture (EJV) and the Cooperative Joint Venture (CJV).
For the Equity Joint Venture, the voting power of each partner is proportional to its contributed capital. For Cooperative Joint Venture, the voting power of each partner is not mandatorily proportional to its contribution of monetary value.
The Equity Joint Venture is a limited liability company; while the Cooperative Joint Venture may be established as a limited liability company or as a legal entity whose shareholders bears unlimited liabilities.
Shekou Law Firm
Shekou Law Firm has provided legal services to foreign investment in China since its inception in 1983. We have involved thousands of cases concerning foreign investment in China and have accumulated abundant wealth of experience in this area.