China Companies

Closure of a Representative Office
Due to the limited activities available to a representative office, foreign investors may want to make a more considerable investment and commitment after spending some time acquainting themselves with the Chinese market. As a consequence they may want to close their representative office and set up a Limited Company in the form of a WFOE / FICE / JV.

A representative office should check whether there are any outstanding tax liabilities. If they are any liabilities or the office does not have record of any of the official receipts (fa piao) of payments that need to be submitted to the tax bureau, then the bureau may arrange an on-site office inspection followed by a closure audit. If the tax bureau believes that illegal work has been conducted, they will remove the company's books and computers for further examination. As a result the company will be liable for any outstanding tax payments and late payment fines of up to five times the amount that was due. If the company did not register with the local tax bureau within 30 days of receiving its business license then another late payment will be due. This time it is 0.2% of the outstanding amount per day.

However if the company has conformed to all the local and national rules and regulations by proving that it has no tax liabilities, which can be verified via its bookkeeping records and certificates and receipts issued by the local and national tax bureaus, then the company only needs to submit the required documents to the Administration for Industry and Commerce (AIC). The tax bureau will still require that the company go through a tax audit report signed by an official Certified Public Accountant, which would also be submitted to the AIC.

Liquidation of a Limited Company
The procedures for closing a Limited Company in China – its dissolution and liquidation – takes approximately 12 to 18 months to complete. According to PRC law, a Limited Cmpany must be dissolved if any of the following circumstances occur:

1. The term of operation expires and is not renewed
2. The Company experiences financial difficulties and the Board deems it necessary to dissolve the company.
3. Due to force majeure, the company is unable to continue its business
4. The company is bankrupt
5. The government has decided to close down the entity due to illegal acts damaging the public interest.
6. Other reasons for dissolution and/or termination clauses stipulated in the original Joint Venture Contract and/or the Articles of Association

Upon the declaration of dissolution with the approval authorities, the company is required to start the liquidation procedures. As stated in the Joint Venture Contract and/or the Articles of Association, a liquidation committee must be formed in order to handle the procedure. A last audit is required to check that that all financial aspects associated with the company have been dealt with, such as all accounts payable and receivable, tax payable, write-offs for bad debts, etc. Once the audit is completed, de-registration of the company is necessary with all the relevant government authorities, such as Ministry of Commerce, State Administration of Industry and Commerce (SAIC), the customs administration, the tax authorities and State Administration of Foreign Exchange (SAFE). All the company's bank accounts shall be closed. In addition, some companies in particular sectors may have other specialized registrations and those should be closed off as well. Although not strictly a financial issue, foreign investors should also ensure that, for example, unused raw materials and unsold products are disposed of properly, and in an environmentally sensitive way, and that buildings and other major assets are dealt with properly.

Hong Kong Companies

Deregistration – Hong Kong
According to the Companies Ordinance 291AA the deregistration of a Hong Kong Limited company can only be applied for after it ceases operation for 3 months. Therefore deregistration can be initiated depending on the date of the company's latest transaction provided that are absolutely no more business transaction within the last 3 months, including no more transactions in the company's bank account as well. The duration of time to finish deregistration process will be totally depending on the investigation conducted by the Inland Revenue of Hong Kong (Tax Department) after the application.

Winding-up – Hong Kong
The main objectives of the companies winding-up are to ensure all the company's affairs have been dealt with properly and to have the company dissolved. A company can be dissolved by winding-up under the following circumstances:

• voluntarily, either as a members' voluntary winding-up or as a creditors' voluntary winding-up
• by the court, i.e. a compulsory winding up which involves winding-up by the Court

The Official Receiver's Office mainly administers compulsory winding-up cases. For voluntary winding-up cases, the Official Receiver's Office is only responsible for keeping the unclaimed and undistributed money pursuant to the Companies Ordinance Rules.

Voluntary winding-up:
A members voluntary winding-up for private limited companies includes the application of a certificate of solvency an arrangement of liquidators to wind-up the company and distribute the company's assets, if any.

Compulsory winding-up:
A limited company may be wound up by the court in the circumstances set out in the Companies Ordinance. The more common ones are:

• the company is unable to pay a debt of $10,000 or above and a creditor serves a notice on the company requiring payment, which is not paid within three weeks;
• the court is of the opinion that it is just and equitable that the company should be wound up; or
• the company has by special resolution resolved that the company be wound up by the court.

A creditor, a shareholder or the company itself can file a winding-up petition against the company.
A solicitor is normally instructed by the petitioner to prepare and file the winding-up petition.

Once a winding-up petition is filed in the court, the winding-up of the company shall be deemed to commence at the time of the filing of the petition for winding-up.

After the commencement of winding-up any disposition of the property of the company, including any transfer of shares or alteration in the status of the shareholders of the company, unless the court orders otherwise, is void; and the company or any creditor or shareholder may apply to the court to stay or restrain any pending action or proceeding against the company.