When a foreign company establishes a WFOE in China, the parent company’s board of directors must pass a resolution authorizing the establishment. The board resolution is a required document for the company registration application, and the Chinese authorities review it to confirm that the parent company has the corporate authority to establish the subsidiary and to make the capital contribution.
A board resolution that’s not properly drafted, not properly executed, or not properly authenticated can delay the company registration or cause the application to be rejected. Here’s what the resolution must contain and how to get it right.
What the Resolution Must Say
The board resolution must state that the board of the foreign parent company — identified by the company’s full legal name, the jurisdiction of incorporation, and the registration number — has resolved to establish a wholly foreign-owned enterprise in China. The resolution must name the city and the province where the WFOE will be registered — “Shenzhen, Guangdong Province” — and the proposed name of the WFOE.
The resolution must authorize the capital contribution — the amount of the registered capital, the currency of the contribution, and the contribution schedule. The registered capital should be expressed in the currency of the contribution — RMB for a contribution in RMB, USD or EUR for a contribution in a foreign currency. The contribution schedule should state when the registered capital is to be contributed — typically within a specified period after the business license is issued, or according to a schedule of instalments.
The resolution must appoint the legal representative of the WFOE — the person who will represent the WFOE as its legal representative — and the members of the management structure — the executive director or the board of directors, the supervisor, and the general manager. The appointees should be identified by their full names, their nationalities, and their passport numbers — or their Chinese identification numbers for Chinese nationals.
The resolution must authorize a specific person to act on behalf of the parent company in connection with the WFOE establishment. The authorized person — typically a director or an officer of the parent company, or a representative of a Chinese law firm or a corporate service provider — is authorized to sign the WFOE’s articles of association, to sign the registration application, and to do all other things necessary to establish the WFOE.
The Execution Formalities
The board resolution must be signed by the directors of the parent company who voted in favor of the resolution. The number of signatories — and the requirement that the resolution be signed, not that the minutes of the board meeting be signed — depends on the parent company’s jurisdiction of incorporation and its constitutional documents.
For a parent company incorporated in a common law jurisdiction — the United States, the United Kingdom, Australia, and others — the board resolution is typically a written resolution signed by all of the directors, or by a majority of the directors if the company’s articles of association permit a written resolution signed by a majority. The written resolution is effective on the date it’s signed by the required number of directors, and the date should be stated in the resolution.
For a parent company incorporated in a civil law jurisdiction — Germany, France, Japan, and others — the board resolution is typically a resolution adopted at a board meeting, and the minutes of the meeting — signed by the chairman of the meeting — are the evidence of the resolution. The minutes should state that the meeting was properly convened, that a quorum was present, and that the resolution was duly adopted.
The Chinese authorities are familiar with the board resolution practices of the major jurisdictions, but a parent company from a jurisdiction with unusual board resolution formalities should obtain advice from a Chinese corporate service provider on how to present the resolution in a form that the Chinese authorities will accept.
The Authentication Requirement
The board resolution must be authenticated — the signature of the person who signed the resolution must be verified, and the authority of the person to act on behalf of the parent company must be confirmed. The authentication is done by a notary public in the parent company’s jurisdiction of incorporation, and the notarial certificate is authenticated by the Chinese embassy or the Chinese consulate in that jurisdiction.
The authentication process is three steps. First, the parent company’s director or officer signs the board resolution in the presence of a notary public, and the notary certifies that the signature is genuine and that the person had the authority to sign. Second, the notarial certificate is authenticated by the designated authority in the parent company’s jurisdiction — typically the Secretary of State in the United States, the Foreign and Commonwealth Office in the United Kingdom, or the equivalent authority in other jurisdictions. Third, the authenticated notarial certificate is legalized by the Chinese embassy or the Chinese consulate — the embassy or the consulate affixes a legalization stamp to the notarial certificate.
The three-step authentication process takes time — two to four weeks from the signing of the resolution to the receipt of the legalized certificate, depending on the jurisdiction and the processing times of the notary, the authentication authority, and the Chinese embassy or the consulate.
China has acceded to the Hague Apostille Convention, and a board resolution from a parent company in a Convention country can be authenticated with an apostille instead of the three-step legalization process. The apostille is a certificate issued by the designated authority in the Convention country that authenticates the origin of the public document — the notarial certificate — and the apostille is accepted by the Chinese authorities without further legalization by the Chinese embassy or the consulate. The apostille process is faster and less expensive than the three-step legalization process, and a parent company from an Apostille Convention country should use the apostille rather than the legalization.
The Translation Requirement
The board resolution must be translated into Chinese. The Chinese translation is filed with the registration application, and the Chinese version is the version that the Chinese authorities review. The original language version — the English version, the German version, or the version in the parent company’s language — is filed for reference, but the Chinese translation is the primary document.
The translation should be a complete and accurate translation of the original document. A translation that omits parts of the original — because the translator considered them irrelevant — or that summarizes the original instead of translating it may be rejected. The translation should be prepared by a professional translator who understands the legal terminology, and the translator should certify that the translation is a true and accurate translation of the original.
The Parent Company’s Constitutional Documents
The board resolution is accompanied by the parent company’s certificate of incorporation — the document that proves the parent company exists — and the parent company’s articles of association or the equivalent constitutional document — the document that defines the board’s authority to establish a subsidiary and to make a capital contribution.
The certificate of incorporation must be a current certificate — a recent extract from the companies register in the parent company’s jurisdiction — and must be authenticated in the same way as the board resolution. A certificate of incorporation that’s dated several years ago may not be accepted — the Chinese authorities want a current certificate that confirms the parent company is in good standing.
The articles of association or the equivalent constitutional document must show that the board has the authority to establish a subsidiary and to authorize the capital contribution without a shareholder resolution. If the parent company’s constitutional documents require a shareholder resolution for a subsidiary establishment or a capital contribution above a certain amount, the shareholder resolution must also be provided and authenticated.
The Practical Approach
A foreign company that’s planning to establish a WFOE in China should start the board resolution process early — four to six weeks before the registration application is expected to be filed. The resolution drafting, the execution, the authentication, and the translation are sequential steps, and any delay in one step delays the entire sequence.
The board resolution should be coordinated with the Chinese corporate service provider who will file the registration application. The service provider knows what the local Administration for Market Regulation requires in the board resolution, and the service provider can review the draft resolution before it’s signed and authenticated to confirm that it meets the local requirements. A resolution that’s signed and authenticated before it’s reviewed by the service provider may contain errors that require a new resolution — and a new round of authentication.
The board resolution is a corporate governance document, not a commercial document. The resolution should be concise and precise — it should state the decisions that the board has taken, and it should not explain the commercial rationale for the decisions. A resolution that’s written like a business plan — describing the market opportunity, the competitive advantage, the financial projections — is unnecessary and may create confusion about what the board actually decided.
