Page 48 - The South China Business Journal
P. 48
ber Focus
Simon SaysLegal Considerations of a
7Startup in China
*Simon Says is a monthly legal briefing event hosted by Prof Simon Choi.
China aims to be an international innovation hub in Asia and she attracts more and more foreign
companies, including many of small and medium size, to establish offices or subsidiaries in China
in recent years to take full advantage of less costs, to avoid unnecessary taxes or agent fees, or to provide
products and services to China’s large and growing markets. Especially for startups, to invest in China
represents a pivotal decision which is crucial to the company’s future and it is recommended that startup
consider certain legal issues before investing in China.
The Right Investment Vehicle. Service or Product Development
& Copyright Agreements.
China recognizes the place of incorporation
of a company and a Hong Kong incorporated Written copyright agreements should be
company and it is deemed as a Hong Kong made with freelance consultants and other
investor while the shareholders and directors third parties service providers who become
of a Hong Kong company is not her concern. involved in production development processes.
Having a Hong Kong company as an investor The legal structure of these copyright
of a China company is an ideal choice as Hong agreements should be properly established.
Kong has entered into the Closer Economic
Partnership Arrangement (CEPA) with Furthermore, if there are cooperation
mainland China and under CEPA, investors agreements on product or service
from Hong Kong enjoy the best benefits. developments or there are collaboration
projects with the government, trade
Types of shares, privileged shares and associations, government agency or
shareholders are main factors affecting universities, these project agreements and
the investment decision by a third party specifications should be reviewed and
investor when equity is used for fundraising. considered carefully. Failing that it may result
More importantly, change of ownership or in startup having no right on or income from
shareholders of its Hong Kong investor does the product it has developed.
not need any filing to or approval from any
China authority or agency. However, issuing The Commercial Books.
the shares and registering them in share ledger
after establishing the company or whenever All opening and closing entries of
there is any transfer of share is important. commercial books should be made in due
In order to avoid tax problems, it is highly time, all decisions adopted should be recorded
recommended for enterprises, which are in in relevant books and the share ledger should
search of fundraising or investment, to issue always reflect the latest status. Thus, the
the shares and duly register the same in the startup should avoid legal and tax implications
relevant company records. as well as irregularities. Duly keep their
company ledgers and records and comply with
their tax liabilities in order to act as a prudent
businessman and to be ready for future
investment or fundraising opportunities.
46 AmCham South China
Simon SaysLegal Considerations of a
7Startup in China
*Simon Says is a monthly legal briefing event hosted by Prof Simon Choi.
China aims to be an international innovation hub in Asia and she attracts more and more foreign
companies, including many of small and medium size, to establish offices or subsidiaries in China
in recent years to take full advantage of less costs, to avoid unnecessary taxes or agent fees, or to provide
products and services to China’s large and growing markets. Especially for startups, to invest in China
represents a pivotal decision which is crucial to the company’s future and it is recommended that startup
consider certain legal issues before investing in China.
The Right Investment Vehicle. Service or Product Development
& Copyright Agreements.
China recognizes the place of incorporation
of a company and a Hong Kong incorporated Written copyright agreements should be
company and it is deemed as a Hong Kong made with freelance consultants and other
investor while the shareholders and directors third parties service providers who become
of a Hong Kong company is not her concern. involved in production development processes.
Having a Hong Kong company as an investor The legal structure of these copyright
of a China company is an ideal choice as Hong agreements should be properly established.
Kong has entered into the Closer Economic
Partnership Arrangement (CEPA) with Furthermore, if there are cooperation
mainland China and under CEPA, investors agreements on product or service
from Hong Kong enjoy the best benefits. developments or there are collaboration
projects with the government, trade
Types of shares, privileged shares and associations, government agency or
shareholders are main factors affecting universities, these project agreements and
the investment decision by a third party specifications should be reviewed and
investor when equity is used for fundraising. considered carefully. Failing that it may result
More importantly, change of ownership or in startup having no right on or income from
shareholders of its Hong Kong investor does the product it has developed.
not need any filing to or approval from any
China authority or agency. However, issuing The Commercial Books.
the shares and registering them in share ledger
after establishing the company or whenever All opening and closing entries of
there is any transfer of share is important. commercial books should be made in due
In order to avoid tax problems, it is highly time, all decisions adopted should be recorded
recommended for enterprises, which are in in relevant books and the share ledger should
search of fundraising or investment, to issue always reflect the latest status. Thus, the
the shares and duly register the same in the startup should avoid legal and tax implications
relevant company records. as well as irregularities. Duly keep their
company ledgers and records and comply with
their tax liabilities in order to act as a prudent
businessman and to be ready for future
investment or fundraising opportunities.
46 AmCham South China
