Procedures for opening
Once you have chosen the location and registered the trademark, one of the first issues to consider is that the investor will have to rent (or buy) premises for a gelato shop before you can start the procedure to incorporate the company that will run the business.
It is therefore vital that the premises be suitable for a gelato shop from a regulatory point of view. The risk for the investor of not carrying out such checks is that you may be unable to form the company and, at the same time, may remain bound by a lease for unfit premises, with the result that you may have to pay rent until maturity. Since you will need to be contractually bound before taking steps to incorporate the company, make sure that the property meets all regulatory requirements. In particular, be sure to carry out the following tasks:
• check the certificate of ownership for the premises so as to verify the identity of the owner and the intended use of the property;
• talk with officials at the offices involved (Sanitation Department etc.) to make sure, even at an informal level, that the premises are suitable;
Once you have received confirmation that the property is suitable, proceed with applications for the authorizations and permits needed to start up the business. Getting those permits can take quite a long time (up to two months), so it is advisable to negotiate a contractual lease period when rent is not payable, as well as giving you the right to terminate the lease if the authorizations and permits cannot be obtained.
Authorizations and licenses
The company that will run the business can be set up in China directly by an individual or by a company (consider using a Hong Kong-based special-purpose company) and the procedure for establishing it involves the following steps:
- approval of the name: the local Administration for Industry and Commerce (AIC) will issue a Notice of Company Name Reservation;
- approval of the project by the local department of the Ministry of Commerce;
- registration with the AIC and issuance of the business license, or certificate of registration, at which point the company acquires legal personality;
- registrations subsequent to the issuance of the business license (such as, for example, registering with the tax and exchange control departments).
It should be noted, however, that within the Shanghai (Pilot) Free Trade Zone (SFTZ), a 28 sq. km. area set up last year to promote more rapid development of investments, the company incorporation procedure is faster and more streamlined, so it is certainly worthwhile thinking about setting up there. Indeed, a company incorporated within the SFTZ will still be able to operate (and therefore run a gelato shop) anywhere else in China.
Another decision concerns the type of company you want to set up. Chinese law stipulates that a newly-formed company can either take the form of a WFOE, a Wholly Foreign-Owned Enterprise, or of an EJV, an Equity Joint Venture. While the first solution has the advantage of guaranteeing foreign investors complete autonomy in running the business, the decision to go for an EJV may be beneficial because the foreign investor will benefit from a whole network of contacts and knowledge of the market that their Chinese partner will already have, though he will of course be entitled to participate in the running of the company.
Finally, operating as a gelato parlour requires approval from the local Office of Environmental Protection, which is required for approval of the project by the Ministry of Commerce, for a license from the Sanitation Department and the specific license to start trading.
Although China is without doubt an attractive market for anyone looking to start up a gelato shop, you should not forget that there are also many reasons why this is one of the most difficult markets to penetrate. Therefore, more than ever bear in mind the 3 P’s rule: Patience, because the Chinese market generally guarantees a return on investment in the medium to long term; Prudence, because in China, more than anywhere else, you need to make sure you carry out very stringent checks; Presence, because you should not expect your business to grow in China unless you are there in person. Finally, be aware that the language barrier, cultural differences and a complex and continuously updated regulatory system mean make it very much advisable for an investor to get the support of experienced legal professionals who work regularly in the Chinese market.
Want to know more about how to open a gelato shop in China? Write to firstname.lastname@example.org
Written by Att. Giovanni Lovisetti, Associate at Zunarelli & Associates International Law Firm, Milan and Shanghai offices. Email address: email@example.com