De-registering/Liquidating Your Entity In China

Foreign Companies operating in China have been facing new challenges and changes in China’s environment. There may come a time, due to various changes in worldwide strategy, market demand and supply, business costs and other considerations; in the PESTE (Political, Economic, Social, Technological, Environmental) factors, that companies will have to exit from China. Our firm, LE YU Corporate Advisory, is capable and experienced to assist clients to clear through the processes and procedures of the Deregistration/Liquidation of their entities in China, so as to allow for a smooth exit.

 

Below, we outline some of the key pointers that companies have to plan and consider ahead in the Deregistration/Liquidation process. This has been largely simplified to enable a easier comprehension.

 

• Deregistration/Liquidation – Jurisdiction

 

 

Many foreign companies may be aware, in the case of exiting from China, they should not just simply “pack-up and disappear”. The Company Laws in China regulates the incorporation and business operations of China as well as the de-registration and liquidation of the companies. The original approving authorities, including the, Administration of Industry and Commerce (AIC) and the Tax Authorities etc. must approve of the de-registration in order for it to be legally and properly dealt with. Failing which, the company and the shareholders and the Legal Representative will be held accountable including fines, penalties and blacklisting of company and the personnel etc.

 

• Liquidation Time Frame  

 

1. For the limited company with not many business activities or nil debts and payables, the de-registration can be relatively simpler. It will take around 2 to 3 months to complete the processes. However, it still needs to be approved and determined by the government authorities in different cities in China.
2. The de-registration processes would normally take an extensive period of time. It also depends very much if the company has been carrying on its business in a compliant way. By that, we mean that the areas, of tax, accounting, company secretarial etc. Normally, it will take around 6 months to 18 months to complete the entire deregistration/liquidation processes depending on the its routine compliances and also if there are out-of-norm requirements of local city authorities.

For the limited company with not many business activities or nil debts and payables, the de-registration can be relatively simpler. It will take around 2 to 3 months to complete the processes. However, it still needs to be approved and determined by the government authorities in different cities in China.

 

• General Processes

 

 a)   Formation of The Liquidation Committee

We will assist our clients by firstly, establishing the liquidation committee. According to the regulations, the Shareholders of the entity need to appoint the members of the liquidation committee of the Company in accordance with PRC law. The liquidation committee shall have the rights to handle the assets of the Company for liquidation purposes.

During the period of liquidation, the liquidation committee shall represent the Company in any legal proceedings and may commence legal proceedings on behalf of the Company.

 

b)   Deregistration in the Various Authorities and Agencies

We will further assist the company to conduct the de-registration processes and procedures with the different government agencies and authorities. The final approval needs to be granted by the AIC (Administration of Industry and Commerce) Bureau.

One of the key considerations and tediousness of the De-registration/Liquidation process is that of Tax Clearance. The Tax Authorities may and can order a Tax Audit of the company’s tax position (including Individual Tax Withholding of Employees, Company Income Tax, VAT etc.). Most companies do find a hard time settling this part, especially on an on-going basis, if there have not been compliant.

 

c) HR Settlement

In China, the Labor Contract Law, the Labor Law and related regulations are more advantageous to employee instead of employer. So during the de-registration and liquidation processes, companies need to be prepared on these.

Once a company decides to wind up, if there is any dispute between the company and the employee, the company is not able to be deregistered until the dispute is settled between the company and the employee.

The employee settlement is one of the most important work when the company is going to deregister/liquidate. We assist our clients to conduct the HR settlement with the employees and file the related information with related government authority according to the laws in PRC China, including:

– Forecast the cost of HR settlement

– Assist the company to negotiate with the employee

– Assist the company to prepare dissolving and compensation agreement

– Calculate and distribute the related payments

– Assist to conduct Individual Income Tax filing

– File the related information in government authority

 

d)   Bank Accounts Closing & Return of Certificates/Seals/Stamps

Further to the above processes and procedures, the company can then close its bank accounts and return the certificates/seals/stamps.

 

 

Summary

It is important that Foreign companies operating in China to consider and plan for the various processes prior to launching a de-registration/liquidation.

The entire de-registration and liquidation in China can be tedious and long drawn if not plan and executed properly. We have simplified the above for easier understanding.