In Chinese business organizations law, business entity formation refers to the process necessary for a registrant to create an entity that has legal personality. Entity formation is a complex process involving the merger of private and public law, which have numerous legal consequences and results. Chinese law has a very complex incorporation process for stock corporations. Incorporators must come to an agreement, draft articles of incorporation, decide on capital contributions, pay in capital, and hold an initial shareholder meeting to file for recognition of the legal entity.

Business entity formation is a pre-organizational act, meaning that acts preceding the formation of the entity are classified differently and an individual may be liable for their acts in the formation process. From the perspective of Chinese economic policy, the purpose of a business entity is to organize physical capital, human capital, and financing into economic activity. In law, business entity formation is strictly the act of appearing at the appropriate government office to follow the required procedures to file for registration and qualification to commence business.

While completing these procedures, the incorporator of a company performs a number of acts intended to form a company and give it independent legal personality, but the incorporator’s actions at that time are not imputed to the company; only when the company is formed would they be considered business activities of that company.

The pre-formation activity is merely in anticipation of future business activity but is nonetheless key to the post-formation company’s business and deserves close attention. Thus, Chinese company law governs both pre- and post-formation activity. Chinese jurisprudence holds that post-formation business activity is typical, whereas special rules are required to govern pre-formation activity in order to define the interests of creditors and investors.

Further Reading

See our comprehensive resources on China’s Foreign Investment Law.

Translation Guide

See: 企业设立