In this article, we provide what it take for doing business without registration in China:
- The consequence of starting a business without registration in China
- Reason to register your company in China
Business registration in China is complex if you are unfamiliar with Chinese regulations and the requirements of different authorities. This generally results in many foreign businessmen bypassing it completely and starting to do business directly. Article 211 of the Company law of PRC states that ”Where anyone fails to register as a limited liability company or joint-stock limited company according to the law but undertakes business operation in the name of a limited liability company or joint-stock limited company, or fails to register as a branch of a limited liability company or joint-stock limited company according to the law but undertakes business operation in the name of a branch of the limited liability company or joint-stock limited company, it shall be ordered by the company registration authority to make rectifications or be closed down, and may be fined not more than 100,000 Yuan”.
The consequences of starting to do business without registration in China could be one of the following:
1. Article 213 of the Company law of PRC states that ”Where any foreign company violates this Law by illegally establishing any branch within China, it shall be ordered by the company registration authority to make rectification or to close it down, and may be fined not less than 50,000 Yuan but not more than 200, 000 Yuan’.
2. Suspension of operations – If you have not registered your company in China and found it to be functioning without a business license, the company will have to cease its operations with immediate effect.
3. Deportation ‘ The company owner may be deported and banned from doing any future business in China.
4. In worse cases, you may also be facing criminal charges. But this is more likely to happen if you’re selling products that are harmful or restricted (for example, illegal and unregulated production of medicines).
There are many reasons why you should register your company in China, mentioned below:
The easiest technique for your competitor to get you out of business is to take advantage of your mistakes. You doing any illegal activity is an opportunity for your business rival to get your business closed down. Even your own business partner can report you to the authorities with an intention to get full proprietorship and control of your business. So it is better to secure the future of your business by doing things in a legal manner and register your company before commencing operations.
If you have not registered your company in China, the company name shall not be trademarked. Therefore, it is easier for competitor companies to copy your logo or brand and steal your customer base and market identification. Some companies can even wait for a few years till your company becomes successful and then register your company’s name and logo and force you to stop operations.
If you have not registered your company in China, you will not be authorized to issue official invoices or fapiao. This can adversely affect the client pool of a company, as many companies will not want to do business with you if you cannot issue fapiao with your company’s name printed on it. Similarly, you may have the same issue with your suppliers, which could adversely affect the ability of your company to operate efficiently.
If you have not registered your company in China, your access will automatically be restricted to services like banking, infrastructure (office space leasing). On the other hand, if you register your company, you can have access to banking services (company bank account, salary accounts, loans), access to infrastructures like Free Trade Zones, and the ability to rent office space for your company, etc.
If you register your company, you can hire Chinese as well as foreign employees for your company, arrange work visas for the foreign employees, pay their salaries, and contribute their mandatory benefits (social insurance and housing fund contributions). A company can also hire through a 3rd party HR service provider through Employee Leasing/Talent dispatching service.
Associating with other companies for business involves authorized agreements and legal contracts. If you have not registered your company in a legal way, you may not have all the documents required and that may be a hindrance to the growth of your company. If you have registered your company you have the ability to engage vendors for providing services to your company, ability to build partnerships with other companies.
How HROne can be beneficial to your business in China
HROne’s service offering involves providing services for corporate formation for businesses who want to enter China. We understand that corporate formation in China can be complex as it involves approval from multiple local authorities and bureaus. It also requires an understanding of China’s social, cultural, and legal particulars. HROne’s extensive network of local government bureaus, knowledge of local protocols, and extensive experience not only will accelerate your entry into China but also make sure that the whole process of company formation runs smoothly.