Choose the legal form before opening: sole operators and general partners have unlimited exposure; companies can limit it
Chinese individually owned businesses and general partners must cover all debts. Limited-company shareholders generally risk their subscribed contribution, but the promised amount must actually be paid within 5 years. Writing RMB 1 million can create RMB 1 million of exposure. Mixing company and household finances can defeat limited liability.
What it takes
A few hours to register through the local government-service website. A limited company then needs ongoing bookkeeping and tax filings: your time if done yourself, or locally priced accounting fees.
What you may gain
Individually owned businesses answer with personal or family assets. General partners have unlimited joint-and-several liability: a creditor may pursue one partner for the entire debt. Limited partners are liable only up to their subscribed contributions, as are limited-liability-company shareholders. Three qualifications matter. Subscribed capital must be paid within 5 years of incorporation and may become payable earlier if debts cannot be met. Withdrawn capital must be returned. Using a company shell to evade debt can create personal joint liability; a sole shareholder who cannot prove separation of company and personal property is also exposed. Capital withdrawal and abuse can therefore undermine the protection. These Chinese rules apply from July 2024.
Context & considerations
Keep company and personal accounts separate, do not pay household expenses with company money, and retain complete records. Do not inflate registered capital for appearances: the subscribed amount must be paid within 5 years. RMB 1 million on the form means RMB 1 million in potential obligations.
Research & references
National People's Congress of China (2020). Civil Code, Article 56. https://www.spp.gov.cn/spp/fl/202006/t20200602_463888.shtml; NPC Standing Committee (2006). Partnership Enterprise Law, 2006 revision, Article 2. http://www.gov.cn/gongbao/content/2006/content_413955.htm; NPC Standing Committee (2023). Company Law, 2023 revision, Articles 4, 23, 47, 53 and 54. https://www.gov.cn/yaowen/liebiao/202312/content_6923395.htm