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The four major types of companies and market entities in China

The four major types of companies and market entities in China

Company law of China | 2023-01-26

As a result of the country's efforts to streamline the process for starting a business, according to the data disclosed on gov.cn, the number of market entities in China increased to a record high of 150 million. Here we have summarized the four major types of companies and other market entities in China:

 

1. Companies and non-company legal persons

Companies in China include limited liability companies and companies limited by shares.

 

(1) Limited liability companies (有限责任公司)

In the names, a limited liability company must have the wording "company limited (Co., Ltd.)" or "limited liability company."

A limited liability company shall have no more than 50 shareholders. The sole shareholder is allowed, but a sole-shareholder limited liability company cannot incorporate another sole-shareholder company. A natural person can only establish one sole-shareholder company. Transfer of equity interests to a non-shareholder shall obtain the consent of more than half of the other shareholders.

 

(2) Companies limited by shares (股份有限公司)

The number of promoters required for establishing a company limited by shares must be more than two but less than 200, and half of the promoters shall have a domestic domicile. The number of shareholders after incorporation is not limited. Share transfers by shareholders shall be carried out via a legitimate way, such as a stock exchange.

The compliance requirement for companies limited by shares is more stringent and complicated than limited liability companies. The formation of the board of directors is mandatory for a company limited by shares. The number of directors in the board shall be from five to 19. A supervisory board with at least three members is also required. For listed companies, independent directors and a company secretary are required.

Besides companies, for-profit legal persons include other entities not incorporated under the Company Law of China. For example, enterprises owned by certain groups of people or under collective ownership and handicraft cooperative association.

Non-profit legal persons may act as market entities for civil activities, such as schools, universities, hospitals, foundations, and associations.

 

2. Individual-owned business

Among the previously mentioned 150 million marketing entities, over 100 million are individual-owned businesses. An individual-owned business should be established and registered by a Chinese citizen with operation capacity. An individual or a household can operate an individual-owned business.

Individual-owned business is common in life services, for example, barbershops and restaurants.

An individual-owned business is not a legal person. Liabilities arising from the business are borne by the owner's private property.

 

3. Partnerships

Partnership enterprises include general partnerships and limited partnerships.

A general partnership is formed by general partners where every partner shall be jointly and severally liable without limit for the debts. A limited partnership consists of general partners and limited partners, and the limited partners shall be liable up to the capital contributed to the partnership.

Partnerships are people's business. Therefore, they are not legal persons. Professional firms, including accounting firms, lawyers, and investment funds, are usually partnerships.

 

4. Specialized farmers' cooperatives (associations)

Specialized farmers' cooperatives refer to the enterprises formed by owners and operators of agricultural services for the joint operation of related services, such as the purchase and use of tools, production, marketing, and selling of agricultural services and products, and development of rural tourism resources.

Members of the cooperative enterprises should be majorly farmers. Registered cooperative enterprises are legal persons. 

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