Single-Member Company is a form of limited liability Company in China, of which the entire share capital is held by one single person or company. Nowadays more foreign investors choose to go alone when investing in China, and setting up a single-member company has become a choice. When foreign companies establish such company it is called a “Wholly Foreign Owned Enterprise, or WFOE.
I. Restrictions on Setting up a Single-Member Company in China
In accordance with the Company Law of China, a natural person is only allowed to incorporate one single member company in China.
II. Good points of doing business with a Single-Member Company
(1) Limited liability for the shareholder
As the shareholder of a single member company only undertakes limited liability, the operational risks for the shareholder can be predefined, encouraging investors to do business with this form of corporation.
(2) Improving efficiency and saving money
The management structure of a single-member company tends to be simple, in which the director and shareholder can often be the same person. So effective resolutions can be made more efficiently to face the changing market and enhance competitiveness of the company.
III. Concern on hotchpotch of the company and the shareholder’s property.
Since there is only one shareholder in the single-member company, there is a big concern that the shareholder would treat the company’s assets and his or her personal assets as a whole, and fail to comply with rules relating to due accounting. Therefore, investors should take care in maintaining clear separation between corporate assets and shareholder’s assets, as well as comply with China accounting rules.