For all of us (foreign) ‘locals’ in Beijing, we have seen the massive growth in foreign-owned restaurants over the past several years. Not only are such establishments popular (and very profitable), they are adding to the international cuisine and outlook of the nation’s capital. In this article, we outline the various procedures required to establish a restaurant. (There are alternatives in establishing a management office first, then a restaurant as a branch of the office; however, we will discuss this in later articles.)

2. BUSINESS ENTITY

In order to establish a restaurant, the owner must decide what type of entity will own and operate the establishment. In China, this is much more difficult than in other markets such as the US, where individuals can own and operate businesses. Fortunately, the restaurant industry is quite open and the operating entity may be either a Wholly Foreign Owned Enterprise (WFOE) (owned by a company or individual) or a Joint Venture (JV) (if partnering up with a Chinese national), though it is not possible for a foreigner to own the restaurant business directly as a sole proprietorship. Further, to open a restaurant, there are additional licenses and approvals that are necessary in addition to the traditional requirements of a limited liability company. However, once the company is set up with the proper business scope and registered capital, it can be used to open additional branches, though, of course, each branch will require certain approvals for that specific location (see below Health and Hygiene, Environmental Impact, etc.)

Unless there are compelling reasons otherwise, such as locating and trusting a suitable Chinese partner, the WFOE, a limited liability company wholly owned by the investor, is the likely choice for foreigners, as it offers the most autonomy. Although previously quite common and unfortunately still prevalent, for the sake of simplicity, many foreigners opt to allow Chinese partners to open the restaurant as a domestic (Chinese) company. In this case, the Chinese partner(s) will be sole shareholder(s) of the company, leaving the foreign investor with no legal ownership rights. (Given the often very large upfront personal investment, we caution investors to consider the appropriateness of such an ownership structure.)

3. Initial Procedures (Unique to Restaurants)

In chronological order, the following procedures must take place prior to establishment of the business entity, itself:

The name (in Chinese) will be in composed of, and in the following order:

Part 1 - City of WFOE: In this case it would be: Beijing; Part 2 – Company name (i.e. Bill’s BBQ); Part 3 - Business type (i.e. Restaurant); Part 4 - Form of organization (i.e. Limited Liability Company).

Various documentation must be furnished, including but not limited to the location and site map of the restaurant and the restaurant’s internal health and safety rules. Within 10 days of the documents submission, the Health Bureau will notify applicant and arrange the on-site inspection. The primary areas of inspection will include the hygiene and safety of; 1) raw foods preparation area; 2) kitchen area; 3) employee changing area; 4) faucet and sink area; and 5) waste disposal area. Inspectors should provide an on-the-spot list of non-compliance and recommendations to remedy the situation. For certain minor problems, a submission of a photo by the applicant of the modified area should suffice, so as to not require a second visit by the inspector. Notification of approval, assuming all areas of inspection do not require repeat visits, should be within 20 days.

Though the registration of Alcohol Permit will not be completed until after issuance of the business license, Tax Registration Permit, and Health and Food Hygiene License, the applicant will need to reflect its intent to sell alcohol in the Health and Hygiene application. The Health and Food Hygiene License application will need to include the approved wording in the business scope to note that it will sell alcohol.

The Report Form shall primarily examine, among others, the following: an environmental evaluation of the indoor and outdoor surroundings and near by building, an environmental analysis of the site, potential and future environmental impact of the surroundings, and recommendations for environmental protection. The primary focus of the environmental impact application is to assess potential and actual noise and water pollution, fire protection, and waste disposal of the site.

In selecting a restaurant location (see above) it is important to note that the outdoor smoke ventilation exhaust fixture shall be located at least 20 meters from any residence or above any residential area.

Once all the above approvals are obtained, they shall be submitted with the articles of incorporation, and feasibility report (along with supporting documentation) in order to obtain the Letter of Approval with the Beijing Municipal Bureau of Commerce.

ii) Registered Capital

The registered capital is the stated amount of capital that will be invested in the business. The registered capital will be reflected in the company’s articles of association, and recorded with the relevant government authorities. Since the entire amount of the registered capital must be invested (subject to cancellation), it is a very important legal and business decision.

Though the minimum amount of registered capital, based on the Company Law, may be as low as RMB 30,000, this will definitely not be applicable for restaurant companies.

Note that the investor is allowed to contribute non-monetary registered capital, among other things, in the form of technology/intellectual property rights. Cash contribution to registered capital may not be less than 30%.

With the Certificate of Approval, the applicant may apply and obtain the temporary business license. The restaurant cannot begin operations at this point.

Once the temporary business license is issued, the applicant may apply for the various approval certificates and the injection of capital. Before the permanent business license the applicant must obtain the following certificates, reports, and take care of the following banking issues:

vi) Permanent Business License with the BAIC

With the permanent business license issued the restaurant will be legally established and can fully operate within the business scope.