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Nov 29, 2011

Shutting Down a Company in China

Because of, mainly, the increased cost of doing business in China, many of our SME clients that are operating in industries under tight margins have decided to closes businesses in China and move to what many think will be greener pastures.  Some of these clients include Chinese companies.

The favorite destinations of our clients are Vietnam, Cambodia and Laos. Many find that Southeast Asia is a more difficult place to do business, but allows more healthy margins for their business.

Please, shut down your company in a “legal” manner or you may find yourself at an airport/border crossing with an immigration official informing you that you are not able to leave China before settling lawsuits, tax issues and criminal charges. We have seen and gotten companies out of these matters far too often.

The process of shutting down operations in China for a Wholly Foreign Owned Enterprise/Wholly Owned Foreign Entity (“WFOE”) is most easily done by foregoing the wind-up/dissolution or liquidation procedures in favor of:

1. Terminating all company workers legally under China Labor Law. Few workers are “at-will” workers under Chinese law and procedures will need to be followed and severance will need to be paid in exchange for releases;

2. The continued payment of all government taxes, licenses and other obligations;

3. The continued compliance with Chinese reporting and filing requirements; and,

4. Paying off all obligations including lease, equipment rentals, and outside agents etc.

This procedure is often less costly than the dissolution or liquidation procedure in China. However, in many cases, dissolution or liquidation is required under Chinese law or advisable because of the necessity to obtain approval to export machinery.

I will be writing articles on the dissolution and liquidation procedure in China in the near future.