There are two types of joint ventures - Equity Joint Ventures and Cooperative Joint Ventures. The Equity Joint Venture is the older type, which provides less flexibility. An Equity Joint Venture always takes the form of a limited liability company. This shields the personal property and wealth of the responsible individuals from corporate loss.

The allocation of profits is the most significant difference between Equity Joint Ventures and Cooperative Joint Ventures. In Equity Joint Ventures, the ratio of capital contributions made by the partners determines how profits are allocated. If one party contributes 40% of the total capital investment, they will receive 40% of total profits.

Most manufacturers prefer Equity Joint Ventures as an investment vehicle. Before making a decision which type of joint venture to choose, the purpose of the investment must be clear.

Cooperative joint ventures

Cooperative Joint Ventures offer more flexibility. They can be organized either as a limited liability company or as a non-legal person, in which the partners are subject to unlimited liability and thus entirely liable for any losses the joint venture may incur. Most Cooperative Joint Ventures are established as limited liability companies.

Unlike Equity Joint Ventures, Cooperative Joint Ventures allow for profits to be allocated according to the partners' discretion. One party may recover its investment through an accelerated repayment structure, and the other party may become the owner of the joint venture's assets after termination of the joint venture.

The legal system in China and the business climate are changing in favor of Wholly Foreign Owned Enterprises and the restructuring of joint ventures. Joint ventures can be restructured into WFOEs. In another scenario, the Chinese side may be transformed into a "silent partner" without significant decision-making powers by reducing their equity stake. To change the equity structure, the foreign investor may contribute additional capital without the Chinese partner increasing their original investment.

The Ministry of Foreign Trade and Economic Cooperation must approve any type of equity change. There are a few sensitive industries, in which 100% foreign ownership is not permitted and the Chinese partner must be the majority holder.

Application Procedures for registering a JV

• Approve new company's name
• Get the approval letter issued by Development and Reform Commission
• Get the Certificate of Approval issued by Commerce Bureau
• Get the Company Code Certificate (Both original and duplicate) issued by Quality and Technical Supervision Bureau
• Get the Business License (Both original and duplicate) issued by Beijing Administration for Industry and Commerce
• Registration with Public Security Bureau
• Taxation Certificate issued by both State and Local Taxation Bureau (Both original and duplicate)
• Certificate of Foreign Exchange issued by SAFE
• Set up account in bank
• Registration with Finance Bureau
  Registration with Statistics Bureau

• The name, domicile, place of registration of the foreign investor
• Copies of the business licenses or certificates of incorporation of the investors and Passport copy of the legal representative
• Appointment letters to be signed by the president of the investors to appoint the chairman and other board members
• Two original bank credibility letters for the foreign investors, issued within 6 months in English
• Investor's Audit Report of the last year
• The name of the WFOE (at least 3 applied company names)
• The domicile of the WFOE that is to be established
• An original copy of leasing agreement with chop of the landlord
• The scope of business, products and production scale
• The total amount of investment, registered capital, source of funds, form of investment and duration of the WFOE
• ID / passport copy of WFOE's legal representative and his 3 photos, one resume (from 18 years old)
• Copies of other board member's ID cards or passports, resume and 2 photos
• Articles of Associations
• Joint Venture Contract
• Feasibility study report
• Sample appointment letter
• Sample Promises letter
• Project application report
• Name lists of the board members
• Application letter
• Commission letter