China Business License Explained
As most countries in the world, China also operates a national company register. No matter the size or business, all companies in Mainland China need to apply for a business license with the government’s Administration for Industry and Commerce (AIC).
Only with this license, companies in China are able to officially register their name and operate legally. The business license is therefore a good reference when doing due-diligence on your Chinese supplier.
In this article, I will explain how a China business license looks like and what information you can find on it.
How does a China Business License look like?
When a business license is issued to a company, it receives an official certificate (A3 format) and an official copy (A4). Every company in China should therefore be able to provide a copy of their business license. It doesn’t really matter whether this is a copy of the A3 or A4 format, as both contain the same information.
Usually, a supplier will be happy to share a copy of its license. If a supplier somehow cannot provide a copy, this is a clear red flag.
Business licenses look about the same throughout Mainland China. Small differences may be present depending on the location, as business license certificates are issued by local branches of the AIC.
Still, they are easy to recognize from the text “营业执照” (business license) in large font. If you receive a copy from a supplier, it typically looks like this:
- The new version of the business license is usually horizontal as in the picture above.
- The picture below shows the vertical version of the business license.
- The two versions of the business license are not essentially different.
All official business licenses are in Chinese. Therefore, I have translated the most important parts into English.
Which information is on a China Business License?
A business license provides basic information about the registered company. This information is particularly useful to determine whether a company is legitimate or not.
The image above states the most important data that can be found on the business license. It includes:
- Unified social credit number
- Official Company Name
- Type of entity
- Official Address
- Legal Representative
- Registered Capital
- Date of Incorporation
- Expiration Date
- Business Scope
- Registration Authority
- Review date
Understanding the information on a business license
You should learn about a few things to interpret the information on the business license correctly. Even if it is translated into English. In the next parts, I will explain the most important points.
Unified social credit number
This is the identification number of the company. Every company has one, and it is used in multiple instances, including tax and credit search. In short, it is the ID of the company.
The Unified Social Credit Code (USCC) is often referred to as the business registration number of a Chinese company and consists of 18 digits.
In October 2015, China introduced the ‘Three-in One’ business license. It is a combination of the old business license (15 digits), the organization code certificate and the tax registration certificate. All merged into one unified system.
Official Company Name
If you are working with a supplier in China, it is most likely that you are dealing with a domestic company. Meaning, a company that is Chinese-owned rather than foreign-owned.
It is an important fact, as it has influence on the official name a company can carry. For example, when a Chinese-owned company wants to register with the Administration of Industry and Commerce, it has two options:
- Apply for a Chinese name
- Apply for both a Chinese and English name
In reality, most companies decide to only register a Chinese company name. As a result, the majority of the English company names you see on Alibaba, The Canton Fair etc. are actually unofficial.
Although this may sound worrying, you should be aware that this is a common practice in China. It is not really a problem, until you want to verify the company’s business license.
Because the company has chosen to register a company name in Chinese, you will need its Chinese name in order to verify their business license.
Please keep this in mind when doing your own due diligence on a company in China.
The formal company name in China must have the following information.
The company’s custom name.
This name is usually between three characters or four characters. The company name cannot contain:
- Words affecting public and state interests
- Words that are misleading
- Words related to a foreign country or international organizations
- Words with the name of a political party, government organ, military entity or other organizations
- Unless approved by the state council, cannot contains words like China or Chinese or National
- Words containing foreign language or letter, or Arabic numeral
The company’s business field:
The description of the business category shall also be mentioned in a short two or three words. Normally, it would be like consulting, trading, Electrical Appliance or investment). This short description is not binding for the actual business. For example, if it says “trading” in the business field, it does not mean that the company can only conduct trading. It is only for identification purposes.
The company type shall be reflected at the end of the company’s name. In general, there are two kinds, the first is Limited Liability Company, and the second is Joint Stock Limited Company. For foreign investors, the common choice is Limited Liability Company.
In general, The full name of the Chinese company shall be: Custom name + Business field + Company type.
Please notice that the company type here is not the same as the company type in the name section. It is a more detailed description instead of just a general one. Common types of companies are:
- Limited Liability Company (invested by individuals)
- Limited Liability Company (invested by foreign invested company)
- Limited Liability Company (invested by foreign investor)
- Limited Liability Company (invested by Hong Kong/Taiwan Macau investors)
- Individual invested company
- Limited Liability Company (invested by companies)
The official address is the address where the company is registered and where the main office of the company is located.
A registered address needs to be a physical address, and each company shall have its own one-and-only registered address before its registration begins.
Virtual Office in China:
Not all investors would choose to commit to an actual office before setting up a company. In that case, it is possible to use virtual address services. A virtual address is a small office that can be used to register a company, but you cannot work in it.
The prices for a virtual address is always cheaper than a real office.
When performing background checks on Chinese companies, you need to pay special attention to whether the official address of the Chinese company matches the physical address. If you learn that the address is different from the actual address, or that the address is a dummy address, this is a very red flag.
The legal representative is the person that represents the company in law. Although every company has an official company stamp, the signature and the decision of the legal representative could still be seen as the company’s decision. Please also be aware that since the legal representative represent the company, if the company conducts any illegal business or action, the legal representative is also liable.
In China, most people are reluctant to act as legal representatives themselves out of fear that they will be held legally liable when something goes wrong with the company, which may be a very high number of small and medium-sized private companies in China. Therefore, the verification of legal representatives is an important factor in assessing and determining business risks when conducting background verification and due diligence on Chinese companies.
Registered capital, also called authorized capital, is the total amount of capital contributions or subscribed share capital subscribed by all shareholders or promoters as stipulated in the articles of association of a corporate enterprise and registered with the company’s registration authority in accordance with the law. While the law does not require a minimum amount of registered capital, the government does not encourage investors to have very low registered capital. This is because registered capital is often seen to represent the financial capability of a company.
It’s important to note that the registered capital only needs to be claimed and not paid. When registering a company, the investor only needs to claim that the investor is going to invest a certain amount of capital within a certain period. This claim is considered as a promise made by the investor to the company. For example, the investor can claim that the registered capital is one million USD, and that it will be paid within thirty years. Since it is a promise to the company, even if the promised amount is still not paid after thirty years, there is no negative repercussion from the government.
Date of incorporation
The date of incorporation is the date on which the business was approved for incorporation and issued a business license. This date of incorporation is not going to change.
In 2022, after the implementation of the three certificates in the Chinese government agencies, the newly established enterprises, the abolition of the “business period” business license is valid for a long time, there is no stipulation of the duration of use. In other words, as long as the business is operating normally, the license can be renewed. Termination of the validity of the main business to cancel their own initiative to the business license, or illegal business by the business sector to revoke the license two kinds of.
The business scope is a detailed explanation of the business’ intended activity. Unlike the business field in the name, the business scope is very detailed. For big Multi National Companies, the business scope would be detailed and descriptive. Please note that the business scope should contain the details of every business operation that a company is going to conduct. If the company conducts any activity outside its business scope, the government authorities may impose a fine for the violation.
Another thing to take note is that although it is okay to put certain business type in a certain business scope, this does not exempt you from other license required for a certain activity. In the business scope, there is always a saying “For business that would require other approval, please get the approval from the relevant authority first.” In short, business scope is only a description about the business in China. It does not mean that it is okay to conduct every business in the business scope. For restricted business, please make sure to get the relevant approval/license as well as record it into your business scope.
When you want to do business with a Chinese supplier, it is very important to check the business scope on their business license.
The business scope is made up of a list of business categories (often with clear exemptions). A company is only permitted to be active in the categories stated on the business license. On the license itself, it usually looks like this:
The Chinese government is extremely strict when it comes to registering the business scope. If a company defines a too wide business scope, it is very likely to be rejected by the authorities.
On the other hand, when it registers a too narrow scope, the company may encounter legal issues when operating outside it.
Typically, the business scope defined on the China business license is very specific and will cover exactly what the company is legally permitted to do. For instance, it may include categories such as “sale of mechanical equipment and parts” and “no trade of items subject to license approval.”
If the products or services you are considering to purchase are not within the business scope, there is no way that the company can legally provide these. If this is the case, you obviously should see this a big red flag.
The registration authority is the China Administration for Industry and Commerce in the city where the Chinese company is established.
The review date is the time when the most recent change in the registration of the enterprise was approved.
Therefore, the date of incorporation the date of review are the same for a Chinese enterprise that has just opened. If the company later registers a change, the Review date is later than the incorporation date.
The QR code is linked to the government official data base. When scanning this QR code, it will direct you to the official government website, where you can access the information of this company.
Aside from the elements mentioned above regarding the business license, you will also observe the stamp of the government authority printed on the physical license. The stamp of the government authority, is what officially allows the business to become operational.
A Chinese business license contains every important information about a company and is required when managing many business operations, from administrative affairs to third-party cooperation. The business license symbolizes that a company has been legally registered in China.
Every company in China needs to have a business license issued by the government. If you consider to do business in China, it is a good idea to ask your Chinese supplier about their business license.
The China business license provides basic, yet official information about the company. As such, it allows you to check whether your supplier is registered and operates legally.