When some US investors come to China and start their businesses here. They are always concerned what the company structure they could choose, in meanwhile, some Chinese investors are also curious about the US company types. Today I would like to walk through the differences between US and China on companies’ types.
US business types for SMEs
Type of the entities | Advantages | Disadvantages |
Sole proprietorships | l Simple tax rules l low cost to establish | l Liability exposure l Only one owner is permitted |
Partnerships | l No federal income tax l No double taxes on corporate and dividends | l Liability exposure
|
C corporations | l Personal assets protection
| l More complicated tax and operation rules l Double taxes on corporate’s profit and dividends |
S corporations | l Personal assets protection l P&L passes through Personal tax returns | l State income tax levied (for some states) l Paying an annual fee(many states) l Identification limitation on shareholders |
Limited liability companies(LLCs) | l Personal assets protection l Limited business debts for percentage ownership share l P&L passes through Personal tax returns l No Identification limitation on shareholders | l Sole proprietors and professionals are prohibited for LLCs l At least two partners taxed as a partnership and not be a professional firm |
*Sources: ‘Small Business Taxes’, Eric Tyson, published by Wiley 2014
Typical business types for Chinese investors
Type of the entities | Advantages | Disadvantages |
Sole proprietorships | l Simple tax rules l Quick and low cost to establish l No double taxes on entities’ profit and dividends | l Only one Chinese citizen permitted and officials from Gov. prohibited l Unlimited personal liability |
Partnerships-General partnership(GP) | l No double taxes on entities’ profit and dividends | l Unlimited Jointly liability |
Partnerships-Special General Partnership(SGP) | l Limited liability to the partners who have no faults
| l Unlimited liability to the partners who conducts material faults or on intention l Only applied to the professional entities (accounting, legal. etc.) |
Partnerships-Limited Partnership (LP) | l Limited partners could do business with the entity l No Non-Competition Undertakings to the Limited partners | l Number of partners from 20 to 49 and at least one general partner
|
Limited Liability Company (Co. Ltd.) | l Personal assets protection l No minimum capital amount barrier | l Number of shareholders from 1 to 49 (individuals and other organizations) |
Shareholding Limited Company | l IPO l Bonds issuing
| l Number of shareholders from 2 to 200 l Most of time applied to large or listed companies |
Typical business types for foreign investors
Type of the entities | Main Nature of the structure |
Wholly Foreign owned Enterprise (WFOE) | l The shareholders are all foreign investors l Applicable to most foreign investors or the large IP or Patents driven industries |
Chinese-Foreign Equity Joint Ventures(EJV) | l The shareholders are partly from Chinese and Foreign investors l Applicable to capital, technology and long-term driven industries. |
Chinese-Foreign Contractual Joint Ventures(CJV) | l The shareholders are partly from Chinese and Foreign investors l Non legal entity ,each party is independent legal person l Applicable to natural resources driven industries (Petrol, Mining, etc.) |
In recent years, more than 95% foreign investors choose WFOE, because of the more opened industries, every 3-4 years, the National Development and Reform Committee of PRC will release the Guided List of the Industries for Foreign Investment, which means that more industries are allowed to be invested by foreign investors. And the latest version was published on June 18, 2015. You could download the brochure from this website.
http://www.ndrc.gov.cn/fzgggz/flfg/flgz/201507/W020150702369199973089.pdf
关键词：宁波会计，宁波审计，宁波会计师，宁波涉外会计，宁波注册会计师, 宁波涉外会计师事务所
Keynotes: Ningbo CPA , Ningbo Accounting Firm , Ningbo Certified Public Accountants, Ningbo Tax Agents, Ningbo Tax Experts, Victor Tu Ningbo, China VAT, China Tax, China GAAP,
Victor & Truman，CPAs 宁波纬度会计师事务所（普通合伙）
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