A sole proprietorship or self-employed business is a common company set up for small traders in China. Opening a small enterprise is a great way to establish a market presence in China and take advantage of several business opportunities.
Read our previous article about The Startup Business Environment in China
Like any business, however, a sole proprietor or self-employed business owner must register in accordance with China’s laws and regulations. Foreigners may wish to own a business directly as a sole proprietor. But is it permitted in China? Keep reading to find out!
What is a sole proprietorship or self-employed business?
A sole proprietorship as its name implies refers to individual ownership. Becoming a sole proprietor or sole trader means that only a single individual runs the company. Thus, all revenues and liabilities are carried out by the individual owner. A sole proprietorship has unlimited liabilities and cannot have shareholders. Thus, a sole proprietor keeps all profits and bears all related income taxes.
A sole proprietor or self-employed business owner is typical of a restaurant or a shop owner. Some suitable businesses include offline retail stores, coffee shops, bars, gyms, grocery stores, flower shops, sales counter of products, etc.
Can foreigners own a self-employed business?
According to Article 3 of the law on sole proprietorship, a sole proprietorship enterprise’s main place of business shall be its domicile. This means that without a domicile status in China, a foreigner cannot be a sole trader. Nevertheless, it is possible to invest in a small enterprise as such by setting up a Joint Venture (JV) that requires a Chinese partner or applying directly for a Wholly Foreign-Owned Enterprise (WFOE).
Check out An Investor’s Guide to Incorporating WFOEs in China
Establishing a sole proprietorship has a lower set up, taxation, and maintenance cost. However, the individual business owner’s personal assets are not separate from the company’s assets. Therefore, the owner is responsible for paying off all debts using his or her personal property in case the company’s funds become insufficient.
What are the conditions for setting up a sole proprietorship?
- The investor is a natural person;
- It has a legal enterprise name;
- The enterprise has registered capital contributions by the investor;
- It has a fixed production and operation site and necessary production and business conditions;
- The enterprise has the requisite employees.
- An application form for the establishment of a sole proprietorship enterprise signed by the investor ;
- The investor’s identity certificate;
- Proof of the domicile of the enterprise;
- Other documents required by the State Administration for Market Regulation (SAMR).
The individual-owned enterprises must register within 15 days from the determination of the following information below.
- Name and domicile of the enterprise
- Name and residence of the investor
- Amount and method of capital contribution of the investor
- Business scope
Applicants must submit the relevant documents to the SAMR and obtain an official business license and company a seal upon approval.