Entity Essentials: Closing a Company in China 

Closing a company in China? Brace yourself! We won’t sugar-coat this – winding down your China operation is often more complicated and time-consuming than setting it up in the first place. Let’s dive in! 

Do You Need a Valid Reason to Close a Company in China? 

No. As a business owner, you can dissolve your company voluntarily through a shareholder resolution without justifying your decision to authorities. 

While you must follow all proper closure procedures, you won’t need to explain or defend your reasons in the documentation. Chinese authorities focus on ensuring you complete the correct process and settle all outstanding obligations rather than questioning why you’ve chosen to close. 

Can You Skip the Closure Process? 

You might be thinking, “Can I just walk away from my China business?” This is particularly tempting for those who aren’t even residing in the country. Please don’t. 

Abandonment strips away your legal protections, making you personally liable for all company debts. It also gets you blacklisted in China for at least three years – blocking future entry, investments and business positions. In serious cases, legal representatives could even face criminal charges. 

Even debt-free companies must follow proper closure procedures to avoid penalties. There’s simply no shortcut worth taking. 

Know Your Exit Options 

Your China exit process will be different based on two simple factors: what kind of business you have and whether you qualify for the quick path or need to take the standard route. 

The fast-track option isn’t available if you’re in a restricted industry, have any legal issues, financial complications, or unfinished business with the authorities. 

Criteria	Standard Deregistration	Simplified Deregistration
Timeline	Typically 6-12 months	Around 40 days or less
Documentation	Extensive documentation required	Primarily needs application form and shareholder commitment letter
Debt Status	Can have outstanding debts (must be settled during process)	Must have settled ALL debts and creditors’ rights
Best Suited For	Complex businesses with multiple obligations	Simple company structures Companies with minimal or no operations Companies with clean compliance records

For this guide, we’ll focus on foreign-owned companies (WFOEs) going through the standard deregistration process – the most common scenario. 

Triggers for Company Closure in China 

First, before anything begins, one of the following triggers needs to occur. The moment any of these events takes place, you have just 15 days to officially start the deregistration process. 

1. Most common trigger: When your shareholders formally pass a resolution to dissolve the company. This is usually documented in a signed shareholder resolution with a specific date. 

2. Other possible triggers: 

• Your business license expires (and you don’t renew) 
• A court orders your company dissolved 
• Government authorities revoke your company license 

Once the trigger is set, it’s time to get moving. 

IMPORTANT: Missing this 15-day window can lead to legal complications and potential personal liability for company directors. 

The Deregistration Process 

Step 1: Assemble Your Exit Team (Liquidation Committee) 

The only thing you need to officially do within the 15 days following the trigger is set up a formal liquidation committee. To save yourself stress, we’d recommend getting everybody to agree to the committee before you trigger the closure. Here’s exactly what’s required: 

• Must include at least 3 people 
• Company directors are automatically on this team (legally required) 
• Team members are nominated by shareholders 
• Needs an appointed leader who will sign official documents 

Don’t forget to obtain proof that your committee was formed within the 15-day deadline by preparing a formal committee formation document with all members listed and stamping it with your company chop.  

Step 2: Create Your Internal Exit Plan 

Before drowning in government paperwork, your team needs to create an internal plan that spells out exactly: 

1. How and when you’ll let staff go (and what you’ll pay them). 
2. What happens to all your assets and equipment 
3. How you’ll settle debts with suppliers and others you owe money to 
4. How you’ll wrap up property leases 

Your liquidation plan needs formal sign-off from your shareholders before you can start using it. Get this approval in writing as an official shareholder resolution. 

Step 3: Initial Filings and Public Notification 

Once your liquidation plan is signed off internally, you’ll need to officially announce your closure: 

1. Notify the Market Regulator 

First, tell SAMR (the State Administration for Market Regulation) you’re closing up shop. This is straightforward – just submit a shareholder resolution that: 

• States the decision to close your business 
• Lists the names of your liquidation committee members 

2. Make a Public Announcement 

Next, post an official notice on SAMR’s website letting everyone know your business is closing. This starts the clock on a public notification period: 

• Standard process: 45-day waiting period 
• Fast-track option: 20-day waiting period 

During this time, anyone you owe money to can come forward with claims. Think of it as your “last call” announcement to settle any outstanding business. 

Step 4: Sell Assets and Pay Debts in the Right Order 

Once you’ve completed steps 1-3, your liquidation committee can begin selling the company’s assets. However, you must use the proceeds from these sales in this exact sequence: 

• First: Pay for liquidation costs (like accounting and legal fees) 
• Second: Pay any money owed to employees (wages and social security) 
• Third: Pay outstanding taxes 
• Last: Pay other creditors 

If there’s money left over after all that, congratulations! The shareholders finally get their share. But if you run out of money before paying everyone, you’ll need to file for bankruptcy through the courts. Make sure you keep financial statements reflecting these activities, and compile that into a liquidation report.  

Step 5: Employee Termination 

This is often the toughest part: Handling employee terminations. To do it right, you must give your employees proper notice periods. Then, calculate each person’s severance pay based on their length of service. Next, pay any outstanding wages, bonuses, or benefits to ensure everyone receives what they’re owed. Finally, cancel the social insurance and housing fund registrations for all your employees. 

Step 6: Clear Your Tax Bill 

Getting free from the tax authorities typically takes 4-8 months and is often the most painful part of closing shop. 

The tax bureau wants to see: 

• Your official shareholder resolution 
• Proof you’ve ended your office lease 
• All your tax filings from the last three years 

Before they’ll let you go, you must: 

• Pay every last yuan you owe in VAT, corporate tax, personal income tax, and stamp tax 
• Hire a local accounting firm to audit your books (if you’ve been open more than a year) 
• Return any unused official invoices and VAT equipment 
• The tax folks might visit your office to ask why you’re leaving

Only after all this will they give you the golden ticket: your tax clearance certificate. And remember – you’ll keep racking up tax obligations until you’re fully closed, so don’t drag your feet! 

Step 7: Deregister Your Company 

Once you’ve wrestled the tax clearance certificate from the authorities, you can apply to officially deregister with SAMR. You’ll need: 

1. The liquidation report from your exit team. It must clearly state three important things: 

• “We’ve paid all our taxes” (and have the certificate to prove it) 
• “We’ve properly let go of all employees” (with severance paid) 
• “We’ve settled all debts with everyone we owe money to” 

2. A new shareholder resolution that confirms the liquidation has been completed successfully and approves the final liquidation report. It’s essentially your shareholders saying “we’ve reviewed everything, all obligations have been met, and we formally approve closing the company for good.” 

Important Bank Preparation: Before submitting your SAMR deregistration, transfer any remaining money from any RMB general accounts (These are your company’s everyday transaction accounts for business operations) into your RMB basic account (the official core account of your company). Once the SAMR deregisters your business, you’ll have only seven days before all accounts freeze, making transfers impossible. 

Step 8: Cancel Everything Else 

You’re not done yet! Before you’re truly finished, you need to cancel several other registrations. 

Take your SAMR papers to your bank to handle foreign exchange deregistration and close foreign currency accounts (moving any remaining money to your basic RMB account). 

Visit the Human Resources and Social Security Bureau to cancel social insurance, submit a stamped application to customs, and don’t forget to cancel any special industry licenses you might have, such as food production permits, import/export licenses, or healthcare certifications. 

Step 9: Close Your Bank Accounts and Cancel the Chop 

The next step is closing your bank accounts, and this must be done in the right order: 

First, close your RMB general accounts. These should already be emptied (as mentioned in Step 7), but now it’s time to formally close them.

Your RMB basic account must be the last to close.

When closing this final account: 

• The remaining money should transfer directly to your shareholder 
• The amount can’t exceed what’s listed as “liquidation income” in your liquidation report 
• Your specific bank branch might have additional requirements 

Remember: You only have seven days after canceling your business license before all accounts freeze, so act quickly! 

Step 10: Getting Rid of Your Company Stamps 

Before you’re truly free, you need to properly dispose of your company stamps (the official “chops” that give legal power to documents in China). 

In major cities like Shanghai and Beijing, you can’t just throw these stamps in the trash or keep them as souvenirs. You must go to the local Public Security Bureau (PSB) to have them officially canceled. This prevents anyone from using them to create fake documents in your company’s name after it’s closed. 

This must be the very last step, since you’ll need these stamps throughout the earlier stages to sign off on all those government forms and bank documents. 

Only when the police have officially recorded the destruction of your stamps is your China business truly, finally, completely finished! 

Congratulations – you’re likely a year older, several grey hairs richer and your China business is finally closed!