WFOE Equity Transfer

Regulatory Filing

Administrative procedures must be completed with multiple government bodies to update the public company registry. The change of ownership during a WFOE equity transfer must be filed with the local commercial authorities and registered with the Administration for Market Regulation to obtain a new business license. Without completing these registrations, the buyer cannot legally exercise shareholder rights or repatriate future dividends outside of China.

These filings require the submission of the signed transfer agreement, board resolutions, and updated articles of association.

Shareholder Agreement

Contractual terms governing the transfer of ownership must be drafted to manage the liabilities and representations of the parties. The transfer contract specifies the purchase price, payment timeline, and the transfer date of the equity interest. This agreement must also address outstanding debts, tax liabilities, and employee transition issues to prevent future disputes.

To be valid in administrative filings, the agreement must be executed by the authorized representatives of both the buyer and the seller.

Tax Obligation

Settlement of local tax liabilities must be completed before the administrative registration of the share transfer can be finalized. The seller must calculate and pay enterprise income tax on any capital gains realized from the WFOE equity transfer. The tax bureau reviews the transaction value to ensure it matches fair market rates, and may adjust the valuation if it appears artificially low.

Proof of tax payment must be presented to the Administration for Market Regulation and the bank to allow the transfer of the purchase funds.