There are three main recognized forms of business organizations in China open to foreign companies:-
Joint Venture (JV)
Wholly Foreign-Owned Enterprise (WFOE)
Representative Office (Rep. Office)

Joint Venture (JV)
A Joint Venture is a business arrangement consisting of two partners creating a new business entity. Both take responsibility for management, expenses and profits and losses.

There can be a number of difficulties in joint ventures. The difficulties of finding the right partner, profit sharing and management issues. But there are also a lot of advantages of
joint ventures such as reducing the risk in startup, cultural & business differences.

Joint Ventures are sometimes the only way to
register in China if a certain business activity is still controlled by the government. e.g. Building and Construction, Car Production, Cosmetics etc.

Wholly Foreign-Owned Enterprise (WFOE)
For some foreign investors, the prospect of having to partner with a Chinese investor presents too great a hurdle to investing in a China enterprise. Others hesitate to share technology or business strategies. Still others simply lack the necessary contacts.

The WFOE Law of the People's Republic of China
was adopted on April 12, 1986. Rules regulating the WFOE were originally conceived forencouraged manufacturing activities that were either export orientated or introduced advanced technology.

On 12th April 2001, in order to eliminate legal barriers that would impede China's joining
the WTO, China announced significant changes to the WFOE regulations, including the
repeal of the restrictions to WFOEs described above. As a result, the WFOE is
increasingly being used for service providers such as a variety of consulting and
management services, software development and trading as well.

The process of applying for approval of a WFOE can be complicated. Preparing the WFOE application, leasing space and laying other groundwork can take several months. Once the WFOE application and the Articles of Association of the WFOE are filed with the
appropriate Chinese authorities, the authorities will respond to the WFOE application with
an approval, denial or a request for additional information.

Representative Office (Rep. Office)
Representative Offices are established by foreign companies to engage in business liaison, product promotion, market research, exchange of technology and other permitted activities
in China. It should be noted that foreign companies here refer all companies incorporated outside China, and those incorporated in Hong Kong, Macau and Taiwan. Also it should be noted that more than one Rep office can be established in China by a foreign entity.

ROs are not allowed to directly engage in operational activities. This is specified in the Business Scope, as shown in the Approval Certificate of Rep. Offices, that a RO should not engage in direct operational activities. However, some ROs are engaged in
operations in a lawful or tacitly permitted way and constitute one of the direct foreign Investment forms in China.

The tacitly permitted way is applicable to
those industries that do not require special material conditions or environment for their operations. For example, a consulting business does not need manufacturing equipment and raw materials. It only needs offices, employees and office articles. In practice, many Rep. Offices that are established by foreign consulting companies directly engage in consulting activities.