Starting and Running a Business

Any debts incurred by a sole proprietorship must be repaid using your personal assets and funds. If it’s unclear whether the business was run by the whole family, all family assets become liable. Even forming a corporation does not offer protection: when a company defaults on its debts, creditors may demand immediate payment of any portion of the subscribed registered capital that was promised but not yet paid. Therefore, your investment cap must be determined based on the principle: “I can afford to lose this amount without affecting my mortgage or medical bills.”

Cost

Zero upfront cost. Before you start, set a personal limit: this is the maximum amount you can lose without affecting your mortgage payments, child support, or medical expenses. Do not invest any more than this figure. Family funds and borrowed money must be excluded from this limit. The real challenge arises when your business starts showing promise — you must resist the urge to pour in extra capital.

Benefit

Losing money is not the only risk. For sole proprietorships, debts are tied to personal assets if the business is run by one individual; if ownership is shared or unclear, the entire family’s assets become liable. Jointly signed debts between spouses are considered mutual obligations; even debts acknowledged later by one spouse are included. If a spouse took out a loan in their own name, it still counts as a joint debt if the creditor proves it was used for the couple’s shared business. Corporations face similar rules: when a company cannot meet its debt obligations, creditors may demand immediate payment of any unpaid portion of the subscribed registered capital promised by shareholders (nationwide).

Note

“Money you can afford to lose” means an amount that won’t force you to sell your home or borrow from relatives. No verifiable official statistics on business survival rates or average lifespan were found on the websites of China’s National Bureau of Statistics or State Administration for Market Regulation. Hence, no numerical figures are included here; only legal consequences are outlined, warranting a grade B rating.

What you’re signing is a “joint and several liability guarantee”. If the company fails to repay its debts, creditors can bypass the company entirely and demand repayment from you. Choosing a “general guarantee” means creditors must first sue the company and liquidate all its assets before they can seek any repayment from you. If your spouse also signs the document, both of your personal assets become collateral, effectively nullifying the limited liability protection afforded by a limited liability company.

Cost

Zero expense. When a bank, supplier, or landlord asks you to sign a “personal joint and several guarantee” or requests your spouse’s signature, pause first. Signing such a document means you voluntarily waive the legal protection that shields personal assets from corporate debts (i.e. the principle of limited liability). Avoid signing if at all possible. If signing is unavoidable, opt for a “general guarantee” and explicitly state the maximum amount you agree to cover. The tough part is that parties often threaten “no loan release without your signature” — you must stand your ground.

Benefit

The wording in a guarantee contract essentially translates to “if the debtor fails to repay, you are obligated to pay instead”. For contracts labeled “joint and several liability guarantee”, creditors can skip suing the company and demand payment directly from you. For “general guarantee” contracts, creditors must first initiate legal proceedings against the company and liquidate its assets; only after that can they seek any remaining balance from you. Debts jointly guaranteed by both spouses are treated as joint and several debts, and any subsequent approval by one spouse also renders them jointly liable. Once a spouse signs the guarantee, both parties’ assets become collateral for the debt (nationwide, effective since 2021).

Note

Most banks require shareholders of small and micro enterprises to sign personal joint and several guarantees when issuing loans. This guideline is not meant to discourage you from taking out loans; rather, it urges you to fully understand what you’re agreeing to before signing. Also, cap the total guaranteed amount within the “affordable loss threshold” specified in guideline 1 (i.e. only risk capital you can afford to lose when starting a business). For general rules governing promissory notes and guarantee contracts, refer to Section 8, Clause 18.

Sole proprietors and general partners bear unlimited personal liability — they must repay all debts incurred by their business. Shareholders of a limited liability company, however, are liable only up to the amount they agreed to contribute at incorporation. That said, they must actually pay in that full amount within five years; if the registered capital is set at 1 million, that is the maximum potential debt they could face. Mixing personal and corporate finances nullifies this “limited” protection.

Cost

Registration can be completed online via local government portals in just a few hours. After establishing a limited liability company, monthly bookkeeping and tax filing become ongoing expenses — either you handle them yourself (which takes time) or you hire a professional accountant, with costs varying by region.

Benefit

Debts incurred by a sole proprietorship must be repaid using the owner’s personal assets or those of their family. General partners in a partnership also bear unlimited joint and several liability — they must repay all partnership debts, with creditors allowed to demand full repayment from any single partner. Limited partners in a limited partnership are liable only up to their subscribed registered capital. The same rule applies to shareholders of a limited liability company. Nevertheless, this “limited” liability protection ceases to apply in three specific scenarios: first, the subscribed amount must be fully paid within five years of incorporation; otherwise creditors may demand early repayment if the company cannot meet its obligations. Second, any withdrawn capital must be returned. Third, using the company merely as a shield to evade debts invalidates this protection — this also applies to single‑shareholder firms where no clear separation exists between corporate and personal finances. In all such cases, shareholders or partners remain personally liable for all corporate debts (nationwide, effective July 2024).

Note

The “limited” liability principle hinges on strict separation between corporate and personal finances: corporate accounts must not be used for personal expenses, and complete financial records must be maintained. Avoid inflating the registered capital merely for appearance’s sake; the subscribed amount must be paid in full within five years. Setting it at 1 million means you could potentially owe up to 1 million in debts.

Once your name is registered, you are legally a shareholder. You must pay the full amount of your subscribed registered capital by the deadline; failure to do so results in both payment and compensation for any company losses. If other shareholders fail to contribute their share during company formation, you are liable for that shortfall as well. While others run the business, all debts remain tied to you.

Cost

Zero expense. If someone asks you to “lend your ID to be listed as a shareholder” or “hold shares under your name temporarily,” always decline.

Benefit

Being officially listed makes you a legal shareholder. You must pay the full subscribed registered capital by the deadline set in the articles of incorporation; otherwise, you must pay the owed amount plus compensate the company for losses. If other shareholders fail to contribute during formation, they share joint liability for that deficit. When the company cannot meet its debts, creditors may demand immediate payment of any amounts not yet due. While the actual operators stay off the records, all obligations remain your responsibility (nationwide, effective July 2024).

Note

A proxy agreement between a nominal shareholder and the true investor remains valid unless specific invalidity criteria apply. However, the true investor can only replace the listed name with consent from over half of all shareholders. If the nominal holder sells or pledges those shares, courts apply the Civil Code’s rules on good-faith acquisition; consequently, the investor cannot reclaim the shares if the buyer acted in good faith, paid a fair price, and completed registration, and must seek compensation solely from the nominal holder. A draft revision to this judicial interpretation was released in September 2025; once finalized and implemented, it will replace the current version, currently the 2020 amendment still valid as of September 2026. Risks associated with serving as a nominal legal representative are discussed in Section 8, Article 28.

By law, a franchisor must first operate at least two company-owned stores for a full year, and must register those stores with the Ministry of Commerce within 15 days after signing the franchise agreement. Before signing, it must also furnish you with written disclosures on 12 specific topics, including franchise fees, refund policies for deposits, and the profitability of existing stores. If a brand fails to register, refuses to provide these disclosures, or demands payment before letting you see the contract, you should walk away immediately.

Cost

There is no cost involved. Simply visit the Ministry of Commerce’s “Franchise Information Management System” website to verify whether the brand has been registered. Then ask the franchisor to provide you with written disclosures covering all required details prior to signing, along with the contract itself. This whole process takes just a few hours.

Benefit

Legal requirements mandate that any franchisor maintain at least two company-owned stores that have been operating for at least one year. Within 15 days of signing the franchise contract, it must register those stores with the relevant authorities; failure to do so results in fines ranging from 10,000 to 50,000 yuan. If registration is delayed further, fines rise to 50,000–100,000 yuan and the violation is publicly announced. Prior to signing, the franchisor must provide you with written disclosures on 12 mandatory topics, such as exact fee structures, conditions under which deposits are refundable, current franchisee numbers and their financial performance, summaries of audited financial statements from the past two years, and any past litigation or arbitration involving the brand. The contract must also explicitly state that franchisees may unilaterally terminate the agreement within a defined “cooling-off period” following signing. Should the franchisor conceal any facts or provide false information, franchisees retain the right to void the contract (effective nationwide since May 2007).

Note

If a brand cannot be verified via the registration database, refuses to provide required disclosures, or insists on payment before contract review, you should avoid it entirely. The “cooling-off period” refers to the specific window after signing during which franchisees may withdraw from the agreement unilaterally; this duration must be explicitly stated in the contract, as regulations only prescribe that it must be “a reasonable period.” When reviewing any disclosed figures regarding average sales, gross profit, or net profit among existing franchisees, always ask the brand to substantiate their sources, as regulations require them to disclose such data transparently.

Registration itself is free; registration fees have been eliminated since 2015. Only five types of documents are required: an application form, proof of identity or eligibility, documents confirming the business location, articles of association or partnership agreement (not needed for individual businesses), and any additional items specified by law. With all documents in order, the license is issued immediately; otherwise, it is processed within three working days. Any fees charged are usually for third‑party assistance.

Cost

There are no fees for the registration process itself. Since January 1, 2015, registration fees for both enterprises and individual businesses have been waived. Completing the process online via local government services or at a service center typically takes just a few hours. Costs related to engraving a company seal, hiring an accountant, or renting a registered address are charges for private services, not government fees.

Benefit

The regulations specify exactly five required documents: (1) an application form; (2) documents proving the applicant’s eligibility and identity; (3) papers confirming the business address; (4) articles of association or partnership agreement for companies and partnerships; and (5) any other materials mandated by laws or regulations. Additionally, companies must submit appointment documents and identification for their legal representative, directors, supervisors, and senior managers. Individual businesses are exempt from submitting articles of association. The business name must be declared voluntarily by the applicant, and the registered capital follows a commitment system — you state how much you intend to contribute, but no payment is required at the time. The scope of operations is chosen from categories published by the registration authority. When all documents are complete and correctly formatted, registration is confirmed on the spot; otherwise it is finalized within three working days, or up to six days for more complex cases. The date printed on the license marks the official founding date of the business entity (effective nationwide since March 2022).

Note

Registration itself incurs no cost; any fees charged are typically for third‑party services. Seal engraving prices are set by market forces. The General Office of the State Council explicitly prohibits mandating specific seal manufacturers, so claims that you must use a designated provider are unfounded. The amount of registered capital does not affect your business image; it only defines the maximum liability you bear, and must be paid in full within five years (see Section 3 regarding selection of business entity). If your planned activities require permits, you may not commence operations until those permits are obtained (see Section 7 on licensed industries).

Operating a business without a license may result in a temporary shutdown order, confiscation of all earnings, and a fine of up to 10,000 yuan. If you handle goods subject to exclusive distribution rights, or engage in securities, futures, insurance, or payment settlement services without authorization, severe violations may constitute the crime of illegal business operations, punishable by up to five years in prison. Renovating premises first and then attempting a trial run prior to obtaining a license are common mistakes.

Cost

No cost involved. Before opening, verify whether your business type requires a license. Restaurants and food vendors must obtain a food business license. Selling only pre-packaged food products does not require a license — only registration is needed. Only then can you officially open for business.

Benefit

Authorities designated by law will investigate any unlicensed businesses. For operations without a license where no specific penalty is stipulated, operators must cease activities, surrender all illicit earnings, and pay a fine of up to 10,000 yuan. More serious penalties apply to businesses dealing in goods requiring exclusive distribution rights or engaging in securities, futures, insurance, or payment services without approval. Such violations may also constitute illegal business operations, resulting in imprisonment of up to five years and fines ranging from one to five times the illicit profits earned. Particularly egregious cases may incur sentences exceeding five years nationwide.

Note

Licensing requirements for financial, medical, and educational services are governed by separate laws; this entry only outlines general enforcement procedures and relevant criminal statutes. Milk tea shops and snack vendors fall under food services and must secure a food business license. Renovating premises first and conducting trial runs prior to licensing are frequent pitfalls. Details regarding licensing tiers for the food industry and requirements for selling fresh produce are covered in Section 8.

If you’re making and selling food — whether it’s snacks, marinated meats, baked goods, or homemade pickles — you’ll need a permit. Selling only pre-packaged foods made by others doesn’t require a permit; you simply have to file a notice with the local market supervision administration at the county level or higher. Fresh meat and vegetables fall under this same category and need no permit at all. Operating without a permit can result in fines ranging from 50,000 to 100,000 yuan — amounts that often exceed the startup costs for many small businesses.

Cost

There is no fee for the permit itself. However, your premises and facilities must meet certain standards, and both on-site inspections and processing take several weeks. Those selling meat must also keep quarantine certificates and meat quality inspection reports for each batch.

Benefit

According to the Food Safety Law, anyone running a food business must first obtain a permit. This applies to producers, sellers, and food service providers. However, selling unprocessed agricultural products or pre-packaged foods does not require a permit; in such cases, a filing with the local food safety authority suffices. Pre-packaged foods are those already packaged and sold by others. Specific rules for small food workshops and street vendors are set by each province. Those found operating without a permit may have all their earnings, food products, equipment, and raw materials confiscated. If the total value of such goods is under 10,000 yuan, a fine of 50,000–100,000 yuan applies; if it exceeds 10,000 yuan, the fine is 10–20 times that amount. The Pig Slaughtering Administration Regulations state that pigs may only be slaughtered at state-designated facilities, which must conduct official quarantine and quality checks. Exceptions apply only to rural households slaughtering pigs for personal consumption. All pork sold or used in food production must originate from such facilities and pass both inspections. Violators face shutdowns, confiscation of livestock, equipment, and profits, plus identical fines as those operating without a permit. The Animal Epidemic Prevention Law requires that all transported or sold animal products be accompanied by valid quarantine certificates and marks; failure to do so results in corrective orders and fines up to one times the value of compliant goods. Judicial interpretations further clarify that if small workshops or street vendors sell food that fails safety standards, consumers are entitled to tenfold compensation — a punitive measure that courts are required to uphold nationwide.

Note

Each province sets its own thresholds and specific rules for small food workshops, restaurants, and street vendors; this section does not list exact figures. Check your provincial market supervision administration website for local regulations using keywords like “regulations on small food workshops, restaurants, and street vendors.” Operating an online store for homemade food does not exempt you from needing permits where required. Beyond permits, general rules outlined elsewhere apply: see Section 6 regarding business registration and licensing, Section 7 for other permit requirements, and Section 5, Article 31 for information on consumer compensation claims.

Legally, any food that is placed into packaging before being sold counts as prepackaged food. Such packaging must carry a label with nine mandatory items, including both the production date and shelf life. For unpackaged, bulk food, the label must still list the food’s name, production date, and the seller’s name and address. If any required label information is missing, a fine of 5,000 to 50,000 RMB applies if the total value of the goods is under 10,000 RMB; if the value exceeds 10,000 RMB, the fine rises to 5 to 10 times that amount.

Cost

Printing labels costs only a few cents to a few dimes each. However, filling in the correct date and ingredient details for every batch takes some time.

Benefit

According to food safety laws, prepackaged food must have a label that includes the following details: product name, specifications, net weight, production date, ingredient list, producer’s name, address, and contact information, shelf life, product standard code, storage conditions, common names of food additives as defined by national standards, and production license number. Any additional information required by laws or food safety standards must also be listed. Bulk food, which is sold without packaging based on individual weight, also needs a label on its container or outer packaging that lists the food’s name, production date or batch number, shelf life, and the producer’s name, address, and contact details. Any prepackaged food sold without a proper label, or with a label/instruction sheet that does not meet legal requirements, will have both the earnings and the goods confiscated. If the total value of such goods is under 10,000 RMB, a fine of 5,000 to 50,000 RMB applies; if the value exceeds 10,000 RMB, the fine is 5 to 10 times that amount. In severe cases, the business may be ordered to cease operations until its production license is revoked. Minor label flaws that do not affect food safety or mislead consumers only require correction; failure to do so results in a fine of up to 2,000 RMB. The latest version of the General Rules for the Labelling of Prepackaged Foods is GB 7718-2025, which was released on March 16, 2025, and will take effect on March 16, 2027, allowing a two-year transition period. This standard mandates a dedicated area on packaging to display both the production date and expiry date, using high-contrast, legible fonts and colors, and arranging dates in year-month-day format nationwide.

Note

Label flaws are categorized into two types, each carrying distinct penalties and compensation rules. Minor flaws, such as spelling errors or irregular font sizes, which do not affect food safety or mislead consumers, only require correction by regulatory authorities; failure to do so results in a fine of up to 2,000 RMB, and consumers cannot claim tenfold compensation. Major flaws, such as missing production dates or shelf lives, are not classified as minor per judicial interpretations: fines are calculated based on the goods’ total value, with amounts ranging from 5,000 to 50,000 RMB if the value is under 10,000 RMB, and 5 to 10 times that value if it exceeds 10,000 RMB. In addition, consumers are entitled to tenfold compensation based on the food’s purchase price, with a minimum compensation amount of 1,000 RMB if the tenfold total is lower (see Section 5, Article 31 regarding tenfold food compensation). This section only verifies the production date and display requirements outlined in the GB 7718-2025 announcement and official interpretations; exact label formatting must follow the original standard text.

Labels, instructions, and ads for ordinary foods must never claim that the products can prevent or treat diseases. Apart from ads for medical products, drugs, and medical devices, no other ads may make such claims or use language that sounds pharmaceutical in nature. Penalties amount to 1–3 times the advertising spend; if the spend cannot be calculated, fines range from 100,000 to 200,000 RMB. In severe cases, the business license may be revoked.

Cost

No cost involved. Simply review all promotional copy, product description pages, and live-stream scripts. The hard part is resisting the urge to use phrases like “lowers blood pressure, blood sugar, and cholesterol” or “treats constipation.”

Benefit

The Food Safety Law states: “Labels and instructions for food and food additives must not contain false information, nor may they make any claims regarding disease prevention or treatment. Producers and sellers bear full responsibility for the accuracy of such content.” Likewise, “Food advertising must be truthful and lawful; it must not contain false information or make any claims regarding disease prevention or treatment. Food producers and sellers are accountable for the veracity and legality of their ads.” In short, packaging, instructions, and ads must never assert any disease-preventive or curative effects, and sellers must accept full responsibility for any such claims. Violations of advertising rules are punished under the Advertising Law, which explicitly bans any non-medical ads from making disease-treatment claims or using medical terminology that might confuse consumers. Offenders face mandatory cessation of advertising, a public retraction of their claims, and fines ranging from 1–3 times their advertising spend; if the spend cannot be determined, fines of 100,000–200,000 RMB apply. Severe violations incur fines of 3–5 times the advertising spend, or 200,000–1,000,000 RMB, and may even result in revocation of the business license, effectively ending operations nationwide.

Note

Terms like “health benefits” are also prohibited for ordinary foods. Only foods officially registered as health supplements may make such claims, and only those listed in the national catalog are permitted. Consumers should be wary of such language; further guidance is provided in Section 6, Item 10. This regulation applies not just to physical packaging and ads, but also to online product pages, live-stream scripts, and social media posts — all of which constitute advertising material.

While earlier articles impose financial penalties, this one targets individuals criminally. Selling meat from diseased animals, meat failing inspection, or products with excessive pesticide, veterinary drug, or heavy metal residues is a crime as long as it is “sufficient” to cause serious poisoning — no actual victims are required, and offenders face up to three years in prison. Adding toxic or harmful non-food substances to food carries a minimum five-year sentence, irrespective of total sales volume.

Cost

No direct cost is involved. Follow the approach outlined in Article 8 (assess which regulatory category your operation falls under): retain all quarantine certificates and purchase receipts, and only use ingredients with verifiable approval numbers on their labels.

Benefit

Article 143 of the Criminal Law governs this category: any food you produce or sell that fails to meet safety standards is illegal if it is “sufficient” to cause serious food poisoning or other severe foodborne illnesses. Offenders receive up to three years of imprisonment or detention plus fines. If serious health damage or other aggravating factors are present, sentences rise to three to seven years with additional fines. In cases of especially grave consequences, imprisonment ranges from seven years to life, plus asset confiscation or further fines. Article 144 covers the deliberate addition of toxic or harmful non-food substances to food; offenders face up to five years of imprisonment plus fines. If serious health damage or other serious circumstances arise, sentences increase to five to ten years with fines. If death results or other especially severe circumstances exist, penalties follow Article 141 (ten years or more, life imprisonment, or death). A joint interpretation by the Supreme People’s Court and the Supreme People’s Procuratorate defines four scenarios that qualify as “sufficient” to cause serious foodborne illness: presence of pathogenic microbes, pesticide residues, veterinary drug residues, biological toxins, or heavy metals exceeding legal limits; use of meat from diseased, undiagnosed, or unqualified animals; production or sale of items banned for public health reasons; and infant formula or medical foods with severely inadequate nutritional content. Excessive or improper use of additives that lead to such outcomes also falls under Article 143. What counts as “toxic or harmful non-food substances” is strictly defined: any substance prohibited by law or listed by government authorities (e.g., banned pesticides or drugs not approved for food animals). Additional serious circumstances under Article 144 include sales totaling between 100,000 and 200,000 RMB, operations near schools, nursing homes, or facilities serving minors or the elderly, or illegal private slaughtering without proper licensing; such acts may also incur penalties under the crime of illegal business operations. Revenue thresholds of 100,000 RMB or net profits of 50,000 RMB are considered “serious circumstances” nationwide.

Note

The dividing line between this article and the previous three is whether food safety standards themselves are violated. Failure to obtain permits, incomplete labeling, or false health claims result in financial penalties, while selling diseased meat, non-compliant products, improper additives, or non-food substances triggers criminal prosecution. The simplest preventive measure remains the steps outlined in Article 8: purchase meat solely from licensed slaughterhouses, retain all quarantine and quality certificates, and use only ingredients with valid approval numbers. Unverified “discounted meat” or unknown “by‑product scraps” are common sources of violations. Due to a 502 error when retrieving the original Supreme People’s Court bulletin, two provincial official reprints were cross‑checked word‑for‑word to ensure accuracy.

After getting a business license, you’re required to file tax returns regularly. Even if you earn nothing, you must still file a return — just fill in all zeros. Failing to do so risks fines up to 2,000 yuan; more serious violations can lead to penalties between 2,000 and 10,000 yuan. If you skip returns for all tax types across three consecutive months, the system automatically labels you as a “non-compliant taxpayer,” and you lose the ability to issue invoices.

Cost

There’s no direct cost involved. You can file electronically via the tax service portal monthly or quarterly in just a few minutes. Hiring an accountant, however, adds extra expense. If you do hire someone, you must also register for social insurance within 30 days of business establishment. The real challenge is remembering to file on time even during months with no business activity.

Benefit

The law clearly states that “taxpayers with no tax liability during a period must still file a tax return as required.” In other words, even when you owe nothing, filing remains mandatory. Non-compliance brings penalties: tax authorities can order corrections and impose fines up to 2,000 yuan; repeat or severe violations may exceed 10,000 yuan. Any unpaid taxes plus daily late fees at 0.05% must also be settled. Furthermore, persistent non-filing leads to automatic classification as a non-compliant taxpayer, blocking invoice issuance until corrected and penalties paid.

Note

With the “multi-certificates integration” policy, a separate tax registration isn’t needed. Use your business license’s unified social credit code to log into the electronic tax portal and specify applicable taxes. Individual businesses and sole proprietorships pay individual income tax on business earnings. Payments are first due within 15 days after month or quarter-end, followed by an annual settlement by March 31 of the following year to adjust any over- or under-payments. Even without any revenue, zero returns must still be filed. Three consecutive months of non-filing results in automatic classification as a non-compliant taxpayer, halting invoice use; cancellation procedures then become far more complicated — see Section 12.23 for details on orderly business closure.

If you are a small taxpayer paying taxes under the simplified regime, and your monthly sales stay under 100,000 yuan or quarterly sales under 300,000 yuan, you are exempt from VAT. Previously taxed at 3%, this rate is now reduced to 1% for the same period. Conversely, arranging fake invoices to offset costs constitutes tax fraud, punishable by up to three years in prison and fines ranging from 20,000 to 200,000 yuan.

Cost

No cost at all. There is no need to purchase or sell invoices, nor to handle “fictitious invoicing” on behalf of others. Simply issue invoices and file taxes based on real business activity.

Benefit

Small taxpayers under the simplified tax regime are legally exempt from VAT if their sales remain below specific thresholds. These thresholds apply from January 1, 2026, through December 31, 2027: 100,000 yuan per month, 300,000 yuan per quarter, or 1,000 yuan per transaction/day. Exceptions apply for real estate sales, rentals, and land-use right transfers. For those meeting these limits, the VAT rate drops from 3% to 1%. Issuing VAT invoices without a genuine transaction, or any form of fictitious invoicing, is illegal and carries penalties up to three years imprisonment plus fines up to 200,000 yuan; repeat or larger-scale violations may lead to sentences ranging from three to ten years, or even life imprisonment nationwide.

Note

The revised VAT Law took effect on January 1, 2026, superseding earlier relief measures for small taxpayers outlined in 2023 documents No. 19 and No. 1. While monetary thresholds remain unchanged, the legal basis has been updated accordingly. The referenced criminal provisions derive from the 1997 Penal Code, specifically Article 205, as amended to reflect current sentencing tiers. Note that VAT exemptions do not apply to income tax; arranging fake invoices is illegal and should never be considered a tax-saving tactic.

Tax authorities never ask for your bank card passwords, payment codes, or SMS verification codes over the phone, nor do they provide an account number for you to send tax payments to. Legitimate on-site tax inspections require officials to present an inspection notice and identification. When receiving such calls, hang up first and call 12366 to confirm. If you’ve already transferred money, immediately call 110 or 96110 to request a payment reversal.

Cost

No cost involved. If you receive calls or texts claiming a “tax audit,” “unusual account activity,” or “fines for non-filing,” or if someone adds you as a contact, simply hang up and ignore them. Then call 12366 or the official phone number of your local tax authority to verify.

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The State Taxation Administration explicitly states: “Tax authorities never request bank card passwords, payment codes, account balances, or SMS verification codes related to payments via WeChat mini-programs, phone calls, or texts.” It also warns: “Some criminals impersonate tax officials, offering services such as ‘tax filing assistance,’ ‘preferential tax policy handling,’ or ‘policy guidance’ to taxpayers.” To verify any claims, call the 12366 taxpayer service hotline or your local tax authority’s official number. Legitimate on-site inspections require officials to present a written notice and identification. Tax payments can only be made via the e-Tax Service or at tax service centers; no tax authority ever provides a designated account for payments. Intermediary agencies offering tax filing services are also subject to regulations. Those who extort taxpayers or withholding agents using the guise of tax officials face fines based on severity. Impersonating government officials to commit fraud results in detention for 10–15 days and a fine of up to 1,000 yuan. If actions meet criteria for both fraud and impersonation, penalties follow the stricter applicable law.

Note

These scams specifically target newly registered sole proprietors and small businesses. Scammers claim “your tax filing records show non-compliance, and fines will apply today,” then steer victims to their own official accounts or mini-programs, charging hundreds of yuan for services that are actually free and take only minutes to complete independently. While hiring external bookkeeping firms is legal, they are not government entities and cannot act on behalf of tax authorities. Victims who’ve already paid should follow Section 8, Clause 2 (payment reversal for fraud) and immediately call 110 or 96110 to request a reversal.

Only when the word “deposit” is used does the double‑return rule apply: if you break the contract, you lose that money; if the other party breaks it, they must pay you twice the amount. Anything above 20% of the contract value does not qualify as a deposit. If you write “advance payment” instead, the law offers no such protection. Offering credit terms is essentially lending your own money to the buyer interest‑free; if they go bankrupt, it becomes a bad debt.

Cost

No cost at all. Simply include the term “deposit” in the contract; the amount must not exceed 20% of the total contract value. Collect the payment before delivering goods. Before agreeing to any credit terms that let the buyer receive goods first and pay later, run a background check on them first.

Benefit

A deposit only becomes valid once the money is actually received by the seller (the effective date is when delivery occurs). If the buyer breaks the contract, they forfeit the deposit. If the seller breaks it, they must return the full amount plus an equal sum as compensation (i.e., double the original amount). Portions exceeding 20% of the total contract value are not treated as deposits. Should the agreed penalty amount be far higher or lower than the actual loss, a court may adjust it at the request of either party. When both a deposit and a penalty clause are included in the same contract, the injured party may claim only one of them, not both (nationwide, effective since 2021).

Note

Under the Civil Code, “advance payment” does not enjoy the same protections as a deposit; it is generally regarded as a simple prepayment. This is the prevailing practice in legal practice, though no specific court rulings were verified for this section. Providing credit terms is equivalent to lending your own funds to the buyer without interest; any default results in a bad debt. Before granting such terms, check the buyer’s records on the National Enterprise Credit Information Publicity System to see if there are any pending lawsuits against them.

If an employee starts working and no written contract is signed within the first month, the employer must pay double wages starting from the second month, continuing until the end of the first year of employment. Social insurance must be registered within 30 days of hiring; failure to do so results in fines equal to 1–3 times the amount of unpaid premiums. There is no legal provision allowing employees to voluntarily waive their right to social insurance coverage.

Cost

The portion of social insurance premiums that employers must pay must be paid continuously; the exact percentages vary by region. There is no cost to drafting the contract itself — simply use the standard template provided by local labor authorities.

Benefit

Employers must pay double wages to employees who have worked for at least one month but still lack a written contract, starting from the second month of employment. Social insurance must be registered within 30 days of the employee’s first day on the job; failure to comply triggers mandatory corrective orders. After this deadline, fines of 1–3 times the unpaid premiums apply, and the responsible personnel face individual fines ranging from 500 to 3,000 yuan. Late or incomplete premium payments incur a penalty of 0.05% of the outstanding amount per day (late fees). If payments remain unpaid past the deadline, additional fines of 1–3 times the original debt apply. Employers bear sole responsibility for timely registration and full premium payments; only legally recognized force majeure events such as natural disasters permit temporary delays or reductions. No provision exists for employees to voluntarily forgo social insurance benefits (applies nationwide).

Note

Double wage obligations remain in effect from the second month through the end of the first year of employment, making delays increasingly costly. Employees without a written contract or unpaid social insurance coverage who suffer workplace injuries or later file labor disputes often face combined costs of retroactive payments, fines, and compensation that far exceed any initial savings the employer might have realized.

Wages must be paid on time and in full, as required by contract and law. If payments are delayed, employees can petition the court for a payment order. Verbal promises regarding raises, bonuses, or advance payments are legally meaningless; without written proof, the party unable to produce documentation will suffer the consequences. Any money lent by an employer to an employee must be backed by a written loan agreement specifying the amount, interest rate, and repayment terms.

Cost

No expense is incurred. The contract clearly states the wage amount. Any raises, bonuses, advance payments, or loans must be documented with signed paperwork — no verbal promises are allowed. Employers must never pay wages out of their own pocket on behalf of the company. Even when dealing with acquaintances, this same rule must be followed.

Benefit

Contractual labor agreements must explicitly outline how wages are paid and how social insurance contributions are handled. Employers are legally obligated to pay wages on schedule and in full, per both the contract and national regulations. Failure to do so allows employees to request a court-issued payment order. Loans made by employers to staff are legally treated as standard loan agreements. Unless otherwise agreed between two private individuals, all such arrangements must be documented in writing, detailing the principal amount, interest terms, repayment date, and method. Verbal promises of bonuses lack any legal standing; without written proof, the party unable to provide documentation will be at a disadvantage (nationwide).

Note

This is not about refusing to help others — it is about ensuring all assistance follows established procedures. Once informal favors become habitual practice, discontinuing them inevitably leads to disputes. Mixing personal loans with company finances risks exposing the lender to financial losses if the borrower defaults. The legal provisions referenced here have been verified; however, the recommendations are based on practical experience, which justifies the C rating.

A study followed 116 newly founded Italian companies for about a year. Entrepreneurs who first formed a hypothesis and then tested it against real market feedback tended to run their businesses better, were more willing to pivot when needed, and did not quit earlier than others. So, if no one is willing to make advance payments or place small orders, you should not believe the claim that “products will sell on their own once made.”

Cost

Just a few dozen to a few hundred yuan is needed to create a prototype or a simple landing page. After that, reach out to dozens of real potential customers and ask them to make advance payments or place small orders. This approach takes a few extra weeks compared to starting production right away. The hard part is resisting the urge to produce the goods first.

Benefit

This randomized controlled trial tracked 116 Italian startups over roughly one year. In such trials, participants are randomly split into two groups; only one group receives a specific intervention, and the results of both groups are compared. The findings showed that entrepreneurs who received training on the “form a hypothesis first, then rigorously test it against market feedback” method achieved better business results, were more likely to switch strategies when needed, and did not have a higher early dropout rate. The authors argue that this approach lowers the risk of pouring resources into projects that seem promising at first glance but ultimately fail (published in Italy in 2020).

Note

This is the only study on this topic, and its sample size is relatively small; it was also conducted only in Italy, which is why it is rated as grade B. The title, source, and abstract have been cross-checked via Crossref and Semantic Scholar; however, the exact effect figures cited in the text have not been independently verified. In practice, if no customers are willing to make advance payments or place small orders, you should not trust the idea that “products will automatically find buyers once produced.”

The main difference between producing one prototype and producing a thousand units lies in where your money gets invested. The yield rate determines your actual production cost. The minimum order quantity and payment terms dictate how much capital you must advance upfront. Inventory levels determine when you can expect that capital back. For products listed in mandatory certification categories, they cannot be manufactured or sold without passing certification and displaying the corresponding certification mark.

Cost

Producing a small batch of prototypes costs a few hundred yuan. It also takes several hours to calculate these key figures: the yield rate (how many of the 100 items can actually be sold), the supplier’s minimum order quantity and payment terms, the capital tied up in inventory, packaging and logistics costs, as well as certification and licensing fees and trademark registration costs. The hardest part is resisting the urge to skip this step and jump straight into production.

Benefit

The main difference between producing one prototype and producing a thousand units lies in where your money gets invested. The yield rate determines your actual production cost — it shows what percentage of a batch of products are qualified for sale. The minimum order quantity and payment terms set by suppliers determine how much capital you must advance upfront. Inventory levels determine when you can expect that capital back. For products listed in mandatory certification categories, they must first pass certification and display the certification mark before they can be manufactured or sold. Unauthorized manufacturing or sale of such products without certification is punishable under relevant certification regulations. Food businesses and restaurants must obtain a food business license (required nationwide).

Note

This checklist is based on practical experience; the legal content has been cross-checked against official sources. Before launching production, check the trademark database maintained by the National Intellectual Property Administration to see if any similar trademarks are already registered, then apply for your own trademark. Details on prohibited use of other parties’ trademarks and designs can be found in items 20 and 21 (keep purchase receipts, and ensure any designs are either created in-house or licensed for use). The list of mandatory certification categories is subject to updates published by the State Administration for Market Regulation.

Selling counterfeit merchandise can lead to criminal penalties. If the illicit profits exceed 30,000 RMB or if total sales reach 50,000 RMB, the offender faces up to three years in prison. Even unsold inventory in storage counts toward these thresholds. Merely claiming “I didn’t know it was fake” is not a valid defense: if purchase prices are markedly lower than market rates without a reasonable explanation, guilt is presumed. Maintaining proper purchase contracts, invoices, payment records, and supplier details provides a crucial legal safeguard.

Cost

Zero upfront expense. For each batch of goods, retain essential paperwork: purchase contracts, invoices, payment records, the supplier’s business license, and any authorization documents. Implement a company policy requiring all buyers to sign off on purchases; under no circumstances should items priced far below market value be accepted. The real challenge lies in resisting the temptation to purchase seemingly profitable low-cost goods.

Benefit

Intentional sale of goods bearing counterfeit trademarks incurs serious legal consequences. When illicit earnings surpass 30,000 RMB or total sales reach 50,000 RMB, imprisonment for up to three years and monetary fines are likely. In cases where these figures are ten times higher, sentences range from three to ten years alongside substantial penalties. Un sold stock also contributes to this calculation; if its value triples the sales threshold, criminal liability applies automatically. The burden of proof lies with defendants to demonstrate genuine ignorance, but judicial interpretations issued in 2025 outline five circumstances where intent is deemed evident regardless of personal admission. These include visible tampering with trademarks, possession of forged authorization papers, prior convictions for similar offenses, purchasing goods at inexplicably low prices, and attempting to conceal evidence after detection. Corporate entities face dual penalties: financial fines imposed on the company itself and individual executives held accountable under identical statutes. Consequently, even when employees execute unauthorized purchases, senior management ultimately bears legal responsibility. Conversely, trademark law offers a defense mechanism: if sellers can prove they lawfully acquired products and identify their source, they avoid compensation obligations. Essential documentation—specifically invoices and supplier records—forms the backbone of this protection; lacking them nullifies any claim of innocence (applicable nationwide; judicial interpretation effective April 26, 2025).

Note

Cosmetics, alcoholic beverages, baby products, electronics, and apparel frequently involve such legal disputes due to substantial price variations among identical items. Marketing terms like “exclusive channel stock,” “end-of-line clearance,” or “duty-free imports” cannot substitute for proper documentation. Beyond criminal penalties, administrative sanctions apply: convicted parties forfeit infringing merchandise and tools, while fines up to five times the illegal revenue may be imposed for operations exceeding 50,000 RMB in value. Upon discovering questionable purchases, immediately cease sales, secure the inventory, and contact brand representatives or regulatory authorities—destroying records or merchandise directly triggers the fifth presumption of intent mentioned earlier. For trademark-related matters, refer to Section 21 regarding permissible usage of third-party designs. A common scam involves strangers offering free merchandise in exchange for retail distribution; later, they claim infringement based on missing paperwork and abnormally low purchase prices, effectively negating all defenses. Legitimate consignment arrangements mandate written contracts, copies of supplier identification and business licenses, and explicit clauses defining ownership and liability boundaries.

Even if you alter an existing image by changing its colors, background, or adding your own icons, you still have not obtained permission to use that artwork. Making money by reproducing someone else’s artwork—whether you earn 30,000 yuan, reach 50,000 yuan in sales, or print 500 copies—constitutes copyright infringement and can lead to a prison sentence of up to three years. In trademark law, any mark that is “likely to cause confusion” is considered infringing as well.

Cost

Licensing fees from legitimate stock image libraries start at just a few dozen yuan per image. Hiring a designer to create original artwork can cost several hundred to several thousand yuan. For every image used on products, keep a record of the license and proof of purchase. The real challenge is avoiding the use of random images found online.

Benefit

Copyright law treats any unauthorized adaptation, translation, or annotation of a work as equivalent to outright copying. Therefore, modifying an original image by changing colors, background, or adding icons still counts as using someone else’s work without permission. The legal thresholds for punishment are as follows: if you profit from selling artwork without permission from the copyright holder—earning at least 30,000 yuan in illegal gains, reaching 50,000 yuan in total illegal business volume, or producing 500 copies or more—you commit copyright infringement and may be sentenced to up to three years in prison and fined. If the illegal gains reach ten times that amount, the sentence rises to three to ten years. Selling counterfeit goods bearing unauthorized designs also carries penalties: selling for over 50,000 yuan or reaching 100,000 yuan in sales can result in up to five years in prison. For trademarks, using a mark similar enough to cause confusion on identical or related goods is also illegal. Even minor modifications do not create a safe zone; such changes remain infringing under current law (effective April 26, 2025).

Note

There are three common pitfalls to watch for. First, printing cartoon characters or celebrity images found online onto clothing, mugs, or phone cases without permission. Second, commercial use of fonts: most require separate licensing, and free preview versions are not automatically free for business use. Third, including unauthorized assets in client designs—the seller remains legally responsible. To simplify compliance, use licensed stock image libraries and keep all license documents on file. Alternatively, require designers to specify the source and scope of any used materials in a contract, making them liable for any resulting issues. Beyond criminal penalties, civil damages and administrative fines apply as well: if public interests are harmed, illegal earnings may be confiscated and fines imposed at 1–5 times the illegal business volume. For trademark checks prior to production, see item 19 (verify samples against the full production list). Conversely, if someone uses your own designs without permission, these same legal provisions apply to protect your rights.

Take nurses as an example: regulations clearly state that when a patient’s condition deteriorates critically, nurses must immediately inform a physician; likewise, if a medical order violates any rules, nurses must raise the issue with the prescribing physician. The same principle applies to all professions: first identify exactly where the relevant regulations specify “mandatory reporting.” The law also does not require people to stand by while others are in danger: if someone voluntarily provides emergency aid and unintentionally causes injury to the victim, they bear no financial liability.

Cost

No cost involved. Simply follow institutional rules, medical orders, and established procedures while performing your duties. Do not make decisions on behalf of others outside your authority. Before attempting to help, ask yourself: “Who will be held responsible if something goes wrong?” The real challenge lies in resisting requests for “flexibility” on the spot.

Benefit

For nurses, statutory job boundaries are clearly defined. When a patient’s condition worsens, they must promptly notify a physician. In emergency situations, they may immediately perform necessary life-saving measures. Should they encounter any medical orders that breach laws or clinical guidelines, they must bring this to the attention of the prescribing physician, and if needed, report it to department heads. Per the Civil Code, voluntary emergency assistance that unintentionally harms the recipient does not render the rescuer legally liable for any compensation (no civil liability applies nationwide).

Note

Adhering to established procedures at work ensures that emergency rescues are legally protected. For any other actions, first determine who holds the relevant authority and responsibility; never substitute personal goodwill for institutional decisions. The 2020 revision of the Nurse Regulations via State Council Order No. 726 only amended provisions related to registration; Article 17 remained unchanged. As no official Chinese text of the Physician Law provisions regarding compliance with clinical standards was accessible at the time of writing, no direct citations were included.

If a business has no outstanding debts, unpaid wages, taxes, or social insurance dues, all investors can issue a written commitment; once posted for 20 days with no objections, simplified deregistration becomes possible. Individual businesses don’t need to post any notice — if no objections arise within 10 days, they can be deregistered directly. When debts cannot be repaid, bankruptcy should be applied for. Leaving things unattended, failing to submit annual reports for two years, and becoming unreachable at the registered address results in revocation of the business license; the responsible legal representative is barred from serving in such a role for three years.

Cost

Simplified deregistration can be handled independently: just post the notice on the National Enterprise Credit Information Publicity System for 20 days. For businesses still owing debts, it’s necessary to first settle accounts — collect what’s due and pay off obligations; this step is called liquidation. Filing for bankruptcy requires an application to the court and typically takes several months. The real difficulty lies in the reluctance to face the situation after suffering losses, leading to procrastination.

Benefit

No debts owed to others, nor any owed to the business; all obligations — including wages, social insurance, and taxes — are fully settled. All investors have issued written commitments. Meeting these criteria allows simplified deregistration after a 20-day public notice period with no objections; individual businesses can be deregistered directly after 10 days with no objections. Companies unable to repay due debts and facing liabilities exceeding their assets may apply to the court for reorganization, settlement, or bankruptcy liquidation. If a dissolved company still has unpaid debts exceeding its assets, the designated liquidator must file for bankruptcy liquidation. Neglecting these steps brings serious consequences: failure to submit annual reports on time results in being listed as a business operating abnormally. Two consecutive years of non-compliance, coupled with being unreachable at the registered address, leads to license revocation; any individual responsible as legal representative is prohibited from holding such a role for three years. Businesses already listed as operating abnormally are ineligible for simplified deregistration nationwide.

Note

The Interim Regulations on Public Disclosure of Enterprise Information were revised via State Council Order No. 777 in 2024 and took effect on May 1; no further amendments have been made since. The former Article 17 — stating that businesses operating abnormally for three years would be added to the list of seriously law-violating enterprises — has been removed. Currently, the list of seriously untrustworthy enterprises applies only to entities found guilty of deliberate falsification in annual reports under severe circumstances. Many online sources still reference the outdated version, so care must be taken. As of now, individual bankruptcy mechanisms — applicable to individual businesses — are only being piloted in select regions; this section has not been cross-verified against original sources, hence is not included here.

Third-party e-commerce store operation scams typically begin with a modest entry fee, then systematically demand escalating payments for "tier upgrades," advance supplier payments, and "account unfreezing deposits." Back-end dashboard orders and revenues are often fabricated simulations; when you attempt to withdraw profits, funds are locked. Furthermore, artificial click-farming and fake reviews to manipulate sales rankings violate fair trade laws and expose stores to platform forfeiture and administrative penalties.

Cost

Zero direct cost. Before transferring money, obtain three mandatory items: a formal written contract, the registered legal corporate name of the operating company, and unambiguous written refund terms. Route payments strictly to the corporate bank account named in the contract—never to personal accounts. The difficulty is resisting sales pressure when promoters flaunt screenshots of "students earning tens of thousands monthly."

Benefit

In a major criminal prosecution handled by the Guangdong Higher People's Court, a criminal syndicate of 55 individuals operating front companies across Guangzhou, Nanning, and Hangzhou defrauded 7,711 victims out of 52.99 million RMB ($7.4 million USD) under the guise of e-commerce store operations. Courts established that defendants possessed zero technical capacity or commercial ability to operate stores, systematically manipulating victims into purchasing escalating "service tiers." The two ringleaders were convicted of criminal fraud and sentenced to 14 years and 13 years and 6 months in prison respectively. Similarly, Jiangsu provincial public security authorities issued fraud warnings decomposing "zero-inventory" cross-border dropshipping scams into four predatory stages: 1) Advertising "zero capital, zero inventory" on social media; 2) Directing victims to download private counterfeit merchant apps under "mentor guidance"; 3) Fabricating rapid simulated customer orders requiring upfront out-of-pocket wholesale payments; 4) Freezing account balances during withdrawal attempts with demands for "security deposits" and "tax fees" before vanishing. In an official case, a victim lost over 900,000 RMB within days. On commercial compliance, the Supreme People's Court affirmed in 2026 typical cases that organizing fake group-buys and artificial order volume to game platform search rankings is illegal under fair competition laws; third-party operators organizing click-farming were fined 100,000 RMB by market regulators and forfeited their 50,000 RMB platform deposit. The State Administration for Market Regulation (SAMR) likewise penalized software vendors selling "one-click scraping" dropshipping tools 530,000 RMB for unfair competition. Under Civil Code Articles 148, 152, and 157, contracts induced through fraudulent misrepresentation may be rescinded through civil litigation within one year of discovery, entitling the defrauded party to full restitution of funds.

Note

Primary beneficiary is yourself. Whenever an agency pitches "zero background needed," "no inventory required," "low input, guaranteed high returns," halt immediately. Never wire advance wholesale payments into an intermediary's proprietary app. Verify business registrations and regulatory penalties via the National Enterprise Credit Information Publicity System beforehand. If you have already wired funds to a fraudulent operator, immediately call 110 or the 96110 anti-fraud hotline to request an urgent transaction freeze (see Chapter 8, Rule 2). Where a licensed agency actually provided contractual services with subpar conversion, disputes fall under civil contract law rather than criminal fraud, requiring formal mediation or litigation. Franchise commercial disclosure verification is detailed in Chapter 12, Rule 5. Benefit magnitude is categorized as High based on avoiding six-figure commercial fraud losses. Primary beneficiary is yourself.

Every registered company and individual sole proprietorship must file an annual information report online during the first half of each calendar year. Missing the deadline causes the business to be placed on the official "List of Entities with Abnormal Operations," which can be removed only after rectifying back filings. Official annual reporting is completely free. Phone callers claiming your business is overdue and directing you to paid mini-programs or third-party agencies are criminals: multiple fraudsters have been sentenced to over 10 years in prison for running annual reporting fee scams.

Cost

Zero monetary cost. Complete the filing online once per year via the official National Enterprise Credit Information Publicity System. Sole proprietors may alternatively submit paper forms. Annual reporting to market supervision authorities is entirely separate from periodic tax returns to the tax bureau. Filing zero-tax returns does not fulfill your annual reporting obligation. The difficulty is remembering an annual requirement that occurs only once per year.

Benefit

Under the Interim Regulations on Enterprise Information Disclosure (State Council Decree No. 777), enterprises must submit their previous year's annual report to market regulation authorities via the National Enterprise Credit Information Publicity System between January 1 and June 30 each year for public disclosure. Entities failing to file on time are placed on the List of Entities with Abnormal Operations and subject to statutory administrative penalties. Abnormal enterprise listings are publicly queryable nationwide; listed entities are restricted or barred from government procurement, public engineering bids, commercial leasing, and bank financing. Sole proprietors must likewise file annual reports between January 1 and June 30, with newly registered entities commencing the subsequent year. For companies failing to file annual reports for two consecutive years while remaining unreachable at their registered premises, market supervision authorities are legally mandated to revoke their business licenses. Official Fraud Prosecutions: Market regulators have warned of imposter syndicates posing as official market supervision staff calling business owners to demand "overdue filing fees" via unauthorized mini-programs. In an official case adjudicated by Jingde County Court, Anhui, a front agency tricked 10,099 sole proprietors nationwide into paying 98 to 398 RMB in bogus filing fees totaling 3.19 million RMB; three ringleaders were convicted of fraud and sentenced to between 10.5 and 10.7 years in prison. In another case in Nanhu District, Jiaxing, fraudsters who concealed that online filings are free while threatening fictitious fines were convicted of fraud with sentences up to 4 years.

Note

Primary beneficiary is yourself. If you receive a telephone call alleging an unfiled annual report, hang up immediately and check your entity status directly on the official National Enterprise Credit Information Publicity System (gsxt.gov.cn) or contact your local market supervision bureau. Never follow unverified SMS links or pay fees through third-party mini-programs. This scam mirrors fake tax collector schemes (see Chapter 12, Rule 14). Submitting periodic zero-tax filings is covered in Chapter 12, Rule 12. If a company's license is revoked for non-compliance, its legally responsible representative is barred from serving as a corporate director, supervisor, or legal representative for three years nationwide (see Chapter 12, Rule 23). If you cease business operations, execute a formal simplified deregistration rather than abandoning filing obligations. Benefit magnitude is categorized as Moderate based on avoiding administrative blacklisting and criminal fraud fees. Primary beneficiary is yourself.

Borrowing money or pooling capital privately from friends, relatives, and internal employees is not illegal. What crosses into criminal territory is publicly soliciting unvetted strangers while promising guaranteed principal repayment, fixed interest, or guaranteed investment yields. Collecting 1 million RMB or taking money from 150 people triggers criminal prosecution starting at up to 3 years' imprisonment. If funds were channeled into legitimate business operations and fully refunded prior to indictment, criminal penalties may be exempted.

Cost

Zero monetary cost. When borrowing operational funds or soliciting equity partners, negotiate in person one-on-one exclusively with existing relatives, friends, and regular employees. Never post solicitations on WeChat Moments, group chats, flyers, or public investment pitch events. If a friend offers to "ask around and bring in outside investors," stop them immediately. The difficulty is resisting the temptation to rapidly pool outside money when facing cash shortages.

Benefit

Article 176 of the Criminal Law governs the crime of illegally absorbing public deposits or absorbing public deposits in disguised form. Penalties include up to 3 years' imprisonment or criminal detention, plus fines; for large sums or serious circumstances, 3 to 10 years; for especially large sums, 10+ years. The Supreme People's Court judicial interpretation sets four concurrent criteria: (1) raising funds without statutory approval from financial regulators or under the guise of legitimate business; (2) publicly advertising through internet platforms, media, investment pitches, flyers, or text broadcasts; (3) promising repayment of principal and interest or investment returns within a set timeframe in cash, physical goods, or equity; and (4) soliciting funds from non-specific members of the general public. Crucially, the interpretation affirms: "Absorbing funds from specific targets among relatives, friends, or internal personnel without public promotion does not constitute illegal absorption of public deposits." However, joint guidance from the SPC, SPP, and MPS identifies two exceptions that still count as soliciting the public: (a) collecting funds from relatives or employees while knowing and permitting them to solicit outside strangers; and (b) hiring outside strangers as nominal employees specifically to collect funds from them. Criminal conviction thresholds require satisfying any one of three metrics: raising >=1 million RMB, soliciting >=150 people, or causing direct investor losses >=500,000 RMB. Thresholds of >=5 million RMB, >=500 people, or >=2.5 million RMB in losses trigger the 3-to-10-year sentencing tier. Total absorbed funds are counted in gross. If funds were primarily invested in legitimate production/business activities and all collected monies are refunded prior to prosecution, criminal penalties can be exempted; significantly minor offenses with negligible harm are not prosecuted criminally. Administratively, local illegal fundraising taskforces impose administrative fines between 20% and 100% of collected funds, and corporate legal representatives face warnings and personal fines between 500,000 and 5 million RMB.

Note

If a project is designated as illegal fundraising, contributing friends and relatives also suffer losses: Article 25 of the Regulations explicitly mandates that losses incurred by participating in illegal fundraising are borne personally by contributors. Article 19 specifically targets a common commercial retail trap: selling goods, prepaid service packages, or project stakes coupled with promises of cash buybacks, equity dividends, or material returns. Selling prepaid VIP cards or store membership cards with promised yield distributions to walk-in customers falls directly under this statutory restriction. Prudent capital avenues involve securing commercial bank credit or properly allocating equity under written partnership agreements (see Chapter 12, Rule 28). For investors avoiding ponzi schemes and high-yield traps, see Chapter 5, Rule 6. For protecting elderly family members against senior care investment traps, see Chapter 17, Rule 5. The primary beneficiary is yourself; secondary beneficiaries are lending relatives and friends.

Converting a residential apartment into a commercial shop requires unanimous approval from every homeowner in the entire building; a single dissenting neighbor legally blocks operation and courts will enforce closure and damages. Furthermore, residential buildings and mixed-use structures lacking specialized industrial exhaust flues strictly prohibit opening new oil-fume restaurants. Non-compliant restaurants face mandatory closure orders and fines between 10,000 and 100,000 RMB, wiping out lease deposits and renovation capital.

Cost

Zero monetary expense. Before executing a commercial lease, transferring security deposits, or commencing interior renovations, invest several hours verifying three essential checkpoints: (1) property ownership title certificate designation (strictly residential vs. commercial); (2) building architectural classification (pure residential, mixed-use commercial/residential, or standalone retail pavilion, including whether residences sit directly overhead); and (3) for food and beverage ventures, verify dedicated exhaust ventilation flues and consult local market supervision bureaus regarding statutory food business permit issuance. The challenge is conducting independent due diligence when landlords and leasing brokers claim "it's totally fine, the previous tenant operated here without issues."

Benefit

Under Article 279 of the Civil Code: "Where an owner changes a residential property into a commercial property, in addition to abiding by laws, regulations, and management covenants, the owner shall obtain the unanimous consent of interested owners." Supreme People's Court judicial interpretations clarify that all other property owners within the same building structure constitute statutory "interested owners." Owners in neighboring buildings within the same community qualify if they demonstrate impairment to property value or living conditions. Without unanimous consent, neighboring owners' lawsuits demanding operational cessation, restoration to residential status, or tort compensation must be supported by courts; defenses claiming "a majority of owners consented" are legally invalid. Under the Ecological Environment Code (effective August 15, 2026, superseding the Atmospheric Pollution Prevention and Control Law), Article 250 strictly prohibits establishing, altering, or expanding catering service projects producing oil fumes, noxious odors, or exhaust emissions in three specific locations: (1) residential buildings; (2) mixed-use commercial/residential buildings lacking dedicated smoke flues; and (3) commercial floors directly adjacent to residential floors within mixed-use complexes. Violators face mandatory rectification orders; refusal to rectify results in forced closure and administrative fines ranging from 10,000 to 100,000 RMB. Government enterprise registration portals are mandated to provide zoning prohibitions during licensing. To obtain a statutory Food Business License, premises must match food handling classifications and maintain statutory separation distances from toxic/polluting sources. Conversely, if leased premises inherently violate statutory mandatory zoning usage codes, tenants have the statutory right to terminate the lease contract provided non-usability was not caused by the tenant.

Note

The fact that "a previous business operated here" proves nothing: previous operators may simply have escaped neighbor complaints or commenced operations before modern environmental statutes took effect. Community management covenants may impose additional restrictions; review property rules before signing. If a space is legally unusable and the landlord refuses to refund deposits or renovation outlays, litigation takes at least 6 months with personal attorney fees; protect yourself beforehand by writing an explicit lease contingency clause: "If statutory permits or food licenses cannot be secured or administrative closure is ordered, tenant may terminate lease with full deposit return." Mandatory licensing catalogs are detailed in Chapter 12, Rule 7, and food tiered compliance in Chapter 12, Rule 8. Primary beneficiary is yourself.

Without a written agreement, default statutory rules govern your venture. Strategic decisions require unanimous consent, profits are divided strictly by paid-in capital ratios, and the partner managing daily shop operations receives zero default salary. If no partnership term was specified, any partner can withdraw at any time by giving reasonable notice. Changing these statutory defaults requires explicit written agreements beforehand.

Cost

Zero financial outlay. Partners sit down for one or two structured meetings to define statutory governance terms and sign mutual covenants. Free standard partnership agreement templates are readily available online following statutory requirements under the Partnership Enterprise Law. The difficulty is overcoming interpersonal hesitation among friends who fear that "talking money damages relationships."

Benefit

Article 4 of the Partnership Enterprise Law provides that partnership agreements must be negotiated and concluded in written form by all partners. Article 18 outlines ten mandatory statutory provisions, including: capital contribution methods, amounts, and payment deadlines; profit distribution and loss-sharing arrangements; partnership affair execution authority; admissions and withdrawals of partners; dispute resolution; dissolution and liquidation; and breach of contract liabilities. For informal co-venturers without registered partnership enterprises, Civil Code partnership contract provisions govern. In the absence of written terms, Civil Code default rules dictate: (1) operational decisions require unanimous consent of all partners unless otherwise agreed; (2) partners executing partnership affairs cannot claim executive compensation unless explicitly contracted; (3) profits and losses are allocated according to contract; if unspecified, by mutual negotiation; failing that, strictly in proportion to actual paid-in capital contributions; and if contributions cannot be determined, divided equally; (4) partners bear joint and several liability for partnership debts, with right of contribution against co-partners; and (5) partnerships without a fixed duration constitute indefinite partnerships, permitting any partner to terminate and exit at any time upon reasonable advance notice. Under the Partnership Enterprise Law, absent an agreed duration, partners may withdraw upon 30 days' advance notice. Furthermore, partnership agreements cannot legally allocate all profits to a subset of partners or force a subset to bear all liabilities.

Note

The most frequent partnership disputes arise between capital investors and operational contributors. If one partner contributes capital without running daily affairs while another manages operations full-time without upfront capital, statutory defaults mean the operator receives zero salary and a smaller profit split. Specify operational salaries and equity grants explicitly in writing. Partnership agreements only bind internal partners; toward external creditors, general partners remain personally liable for all partnership debts (see Chapter 12, Rule 3). Fund solicitation boundaries are covered in Chapter 12, Rule 26. Statutory provisions have been verified against original legal texts; the premise that "written agreements reduce interpersonal disputes" is empirical best practice without randomized trials, hence graded Evidence Grade C. Beneficiaries are you and your business partners.