Very helpful post over at the always helpful International Business Law Advisor Blog. The post is appropriately entitled, The 5 Key Factors You Must Consider When Establishing a Foreign Corporation [link no longer exists] and it lists out the following:
Decide on Corporate Form: The post talks of determining the right corporate form for the country in which you will be establishing your company. For China, this might mean Joint Venture, Representative Office, Wholly Foreign Owned Entity (WFOE), etc. For more on forming a company in China, check out the following:
- How To Form A Company In China. The Basics
- How To Start A Business In China — WFOE
- How To Start A China Business — Representative Office
- The Best Way To Do Business With China. Joint Venture, Rep Office, Licensing Agreement, Distributorship, Export Selling?
Identify Your Business Purpose: The post notes how “unlike in the U.S., the business purpose of an entity in a great number of foreign jurisdictions require that the business purpose of the entity to be described in detail.” This too is true of China, where what you list as the scope of the business can end up limiting what it can do. For more on this, check out the following:
- How To Form a China WFOE. Scope Really Really Matters.
- How To Form a China WFOE. Scope Really Really Matters, Part II.
Choose the Corporate Name: The post notes how a “great majority of foreign countries have specific requirements regarding corporate names” and this is true of China as well.
Determine the Officer and Director, if any: The post notes how some countries do not recognize the U.S. concept of “director and officer” and of how residency requirements may also apply. China definitely has a different leadership structure than is familiar to Americans and this oftentimes results in problems.
Quantify Capital Requirements: The post notes how minimum capital requirements “necessary to form an entity varies by country.” This is actually true within China where some cities have fairly low minimum capital requirements and others have much higher such requirements. For more on China’s minimum capital requirements, check out the following:
- How To Start A Business In China — The Minimum Capital Requirements For A WFOE
- Minimum Capital Requirements. Good News For Small Companies Looking At Shanghai
Okay, so what is the missing, most important consideration of all? Whether it even makes sense to form a company overseas. This is by far the most important and also most complicated in forming an overseas entity.
Is forming a company overseas really the best way to accomplish what you are seeking to accomplish? Might you be able to sell your product or services pretty much as well via a licensing, franchising, or distributorship relationship? Do you really need a company in a foreign country to have your products made there or your research conducted there, or might you be better off just outsourcing?
Most importantly, is going overseas really right for your company. Running a single domestic company is tough enough. Now consider running two or more companies at the same time, with one or more of them being in a foreign country. Or as my friend Ben Shobert would say, Are You China Ready?