As an investor or shareholder of a WFOE in China, when you decide to end up your business, you should take steps according to certain rules and regulations to wind up your WFOE.
First of all, check the Company Law and your Articles of Association, and you may have to prepare a Shareholder’s Resolution accordingly which incorporates your decision as to liquidate the WFOE and the composition of the Liquidation Committee.
What’s the role and rights of a Liquidation Committee? Article 71&72 of the Implementing Rules for the Law of the PRC on Wholly Foreign-owned Enterprises reflects that if a WFOE plans to end up its business and de-register itself before Chinese authorities, it may have to select candidates for a Liquidation Committee which will carry out their duties and responsibilities during the liquidation procedures. A Liquidation Committee must be composed of the Legal Representative of the WFOE, representatives of the creditors of the enterprise and representatives of the relevant competent authorities. Besides, persons such as accountants and lawyers registered in China may be invited to serve on the committee. After being established, the Liquidation Committee may then convene creditors’ meetings and take over the management of and administer the property of the enterprise. Also, they may have to prepare a balance sheet and a property list thus to assess the value of the enterprise’s property and distribute them in order. Furthermore, they will prepare a liquidation plan which is supposed to be submitted to relevant authority for approval later, and they may also exercise their power as representative of the WFOE during any litigation regarding the WFOE itself.
Secondly, you need to prepare list of documents as required by specific authority including Commerce Bureau and Administration for Industry and Commerce to file your business licence de-registration application and the liquidation plan on-site for approval. Be aware of the requirements provided by each authority since they may change a little bit from time to time in different areas.
Moreover, when you accomplished de-registration of business licence, you still have to go through procedures regarding post de-registrations which may include Tax De-registration before the State and local Tax Administration and de-registration with customs if you engaged in import/export business.
The liquidation procedures may be onerous and complicated, and each step may involve bunch of legal instruments which need to be prepared with. Thus it is highly recommended to employ professional attorneys and accountants to help you efficiently get through all of these. If you have any other question regarding winding up your company, feel free to contact us, please.