In this article, you will get information about what it takes for doing business without registration in China.
Consequences of starting a business without being registered in China Setting up an inhuman entity company in Greater China.
Reason to register your company in China
If you are not familiar with Chinese business regulations and the requirements of different departments in China will be very complicated. This usually leads many foreign businessmen to bypass it altogether and start doing business directly.
Article 211 of the “Company Law of the People’s Republic of China” stipulates: “If you have not registered as a limited liability company or a company limited by shares according to law, and are engaged in business activities in the name of a limited liability 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 order the company registration authority to make rectifications or to be closed down, and may impose a fine no more than 100,000 Yuan.”
The consequences of starting business in China without registration may be one of the following:
- 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.”
- 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.
- Deportation — Company owners may be deported and banned from conducting any future business in China.
- In worse cases, you may also be facing criminal charges. This is more likely to happen if you’re selling products that are harmful or restricted (illegal and unregulated production of medicines, etc.).
The reasons that you should register a company in China are as follows:
The easiest technique for your competitor to get you out of business is to take advantage of your mistakes. Any illegal activity your company engages in is an opportunity for your business opponent to close your business. Even your own business partners can report you to the authorities in order to obtain full ownership and control of your business. Therefore, it is best to ensure the future of your business by acting in a legal manner and registering your company before starting operations.
- Brand recognition
If you have not registered your company in China, the company name must not be trademarked. It is easier for a competitor company to copy your logo or brand and steal your customer base and market identity. Some companies will even wait a few years until you build your business foundation, then register your company name and logo, and force you to cease operations.
- Accounting limitations
If you have not registered a company in China, you will not have the right to issue official invoices. This may have an adverse effect on the company’s client pool, because many companies will not want to do business with you if you cannot issue an invoice with the company’s name printed on it. Similarly, your supplier may encounter the same problem, which may adversely affect your company’s ability to operate effectively.
If you have not registered your company in China, your access rights will automatically be restricted to services such as banking and infrastructure (office space lease). On the other hand, if you register your company, you will have access to banking services (open company bank accounts, payroll accounts and loans), use infrastructure services such as Free Trade Zones, and office rental, etc.
- Hiring ability
If you register your company, you can hire Chinese and foreign employees for your company, arrange work visas for foreign employees, pay their wages, and pay their mandatory benefits (social insurance and housing provident fund contributions). Companies can also recruit through third-party human resource service providers through employee leasing/talent dispatch services.
- Business alliance
Business dealings with other companies involve licensing agreements and legal contracts. If you have not registered your company in a legal way, you may not have all the required documents, which may hinder the development of your company. If you have registered your company, you will have the ability to engage vendors to provide services for your company and have the ability to establish partnerships with other companies.
How can China Payroll be beneficial to your business in China?
China Payroll’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.
Contact us now for more information about business registration in China.