Entity Formation In China -PRC doing business considerations will direct the selection of either a wholly foreign owned enterprise (“WFOE”) or a representative office. Under PRC law a WFOE is permitted to engage in production or commercial activities in China - PRC as approved and specified in the business license and has the right to import and export for its business purposes. The China representative office may not perform any profit-making functions but may liaison for business purposes, introduce products, conduct market research; and conduct technological exchanges. The signing of contracts by the parent company with local PRC companies with the China representative office being involved in the negotiation is permissible.
The Employment Relationship Most foreign corporations choose not to directly employ local Chinese employees. Under China - PRC employment law a foreign investment enterprise such as a WFOE can enter into any employment contract with local PRC staff, while a representative office must employ local staff through an authorized foreign enterprise service corporation such as FESCO. Under China PRC employment laws a WFOE can enter into individual labour contracts with each individual PRC employee and is required to submit the labour contracts for certification by the local labour bureau. The local staff working in a representative office is technically speaking not employees of the representative office, but employees of the foreign enterprise service corporation seconded to the representative office. This peculiar feature does not carry much practical significance in terms of the actual performance of work by employees.
The Employment Contract China - PRC employment law requires direct employment by WFOE will be under a written agreement in the prescribed Chinese language, following the form prescribed by the local labour administration, and including at least the minimum seven items dictated by Article 19 of the Labour Act. Employment through authorized foreign enterprise service corporation will be under the standard terms of the “blue book” contract of the corporation, although the representative office may, and should, submit additional terms for review and inclusion by the corporation.
Terminating
the Employment Relationship
Under China - PRC employment Law generally the WFOE may terminate the direct
relationship with thirty days of notice and specifically defined cause. Termination
in China for less than cause subjects the employer to legal action in a very
fluid legal environment. By comparison, termination of a FESCO engagement
also requires thirty days of notice, but offers substantially greater company
legal protections under China - PRC employment law.
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While stock options may be granted to employees in the PRC - China, national currency may not be transferred abroad for their exercise.
COMPENSATED SOCIAL ACTIVITIES
By statute in PRC - China, time spent in social activities in the workplace (political study, promoting family planning, etc.) must be considered compensated time by the employer.
PROBATIONARY PERIOD
A
probationary period of up to six months may be included in a PRC - China employment
agreement, avoiding the 30 day notice of termination requirement during the
period.