Setting Up Operations in China

Response #1: I cannot answer your first question, but for your second question, absolutely, you should register your important trademarks in China. Intellectual Property (IP) infringement is still a great concern in China, and you should be proactive in protecting your IP there.¹

 

Response #2:

It's been a few years, but if I recall correctly you don't "convert" a rep office to a Wholly Foreign Owned Enterprise. You form one, then the other, and then figure out how to transfer assets and contracts to the new legal entity, all under the microscope of bureaucrats. (Then you have to liquidate the rep office, which is an odd concept for something that is essentially a license and not a legal entity.)

 

If you plan on being in China, my recommendation is to bite the bullet and start with the WOFE. The capital requirements really aren't all that large, and you largely avoid the hassles of bumping up against what rep offices are allowed to do. Since you are going to open a WFOE anyway in time, do it right the first time and save hassle in the long run.²

 

Response #3: I am GC at Zippo Manufacturing Co. It is critical that you register the company's trademark(s) before beginning any sort of activity in China. The sooner the better. Yesterday being preferable. I hope someone has not registered it already. Check asap. Register in every class that is arguably near your current product or activity class or that your company plans to be in within 5 years. A broader registration is necessary for defensive purposes. You can expect to face all sorts of trademark issues, copyright issues, etc. Wan Hui Da and East Concord are excellent Chinese firms. I can give you contact information at either or both. Having global IP counsel is a good idea if you do not already have that. Zippo uses Iliana Haleen out of the Frankfurt office of Squire Patton Boggs.

 

You will also want to register domain names with at least the primary trademark in them for all of the key China generic top-level domain (gTLDs). Do that ASAP also.

 

You do not describe what your company intends to do operations wise besides having a server but if your company plans any operations that require selling or marketing activities, sourcing, etc. in China you will need a WFOE. Zippo started with a Rep office and it quickly became clear that the severe restriction on activities that can be conducted via a Rep office was not sufficient. You cannot "convert" a Rep office to a WFOE. The WFOE is a completely separate entity. Moving employees into a WFOE from a Rep office is not a problem however. Even if you do not plan immediate operations in China but plan operations within two years, I would consider starting with a WFOE and skipping over the Rep office stage if the capital contribution requirements for a WFOE are acceptable to your company. It takes several months to set up a WFOE. Rep offices are not immediate either. China is changing rapidly but is still rather formalistic, so there are many steps and filings that have to occur. Start a banking relationship immediately also. There is a lot of detail and many considerations behind this decision. I suggest working with a global law firm that has offices in China as well as in your home country.³