Is It Invalid to Establish Joint Ventures between Foreign Companies and Chinese Citizens in China?

(By You Yunting) Today we would like to introduce a typical case concerning the situation where a Chinese citizen tries to form a joint venture with a foreign individual. Pursuant to Chinese laws and regulations, foreign companies, enterprises, other commercial organizations and individuals (the “foreign investors”) can only form joint ventures with Chinese companies, enterprises and other commercial organizations, rather than with Chinese citizens. For these reasons, the court determined that the contract agreed upon by the Chinese citizens and foreign investors was invalid and each party should undertake the expenses and costs of establishment individually.

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The Establishment Procedure of Foreign-Capital Enterprises in Shanghai FTZ

(By Bai Lituan) On August 30, 2013, the Standing Committee of the National People’s Congress enacted the Decision of the Standing Committee of the National People’s Congress on Authorizing the State Council to Temporarily.

Adjust the Administrative Examination and Approval of Relevant Laws in China (Shanghai) Free Trade Zone (the “DESIVISION”). The DESIVISION authorizes the State Council to temporarily adjust about 11 administration examinations and approval of the establishment and merger of foreign-capital enterprises including the wholly foreign-owned enterprises, Sino-foreign cooperative joint venture and Sino-foreign equity joint ventures in the Shanghai Pilot Free Trade Zone (the “FTZ”). Earlier reports once said that it would temporarily suspend the implementation of the Law on Wholly Foreign-Owned Enterprises, the Law on Sino-Foreign Cooperative Joint Ventures and the Law on Sino-Foreign Equity Joint Ventures in the FTZ. In effect, those three laws involve the establishment, business structure, foreign exchange management, labor and personnel, finance and accounting, dissolution and liquidation, etc. The DESIVION of the National People’s Congress just temporarily suspends 11 administration approvals and changes them into filling administration. The Law on Wholly Foreign-Owned Enterprises, the Law on Sino-Foreign Cooperative Joint Ventures and the Law on Sino-Foreign Equity Joint Ventures will still be enforced in the FTZ and be temporarily adjusted.

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