Closing a Company in China: How to Shut Down and Retain Key Talent

1. Introduction: Why Companies Close Entities (But Keep Talent)

As a mid‑sized Singaporean business, you may decide to close your legal entity in China to optimise costs, restructure operations, or pivot strategically. But talent is your asset: local staff hold essential knowledge, client relationships, and market intelligence—hard to replace, especially in Asia's complex environment.

This guide shows how to close a company in China while retaining employees without entity, leveraging an Employer of Record (EOR) China approach. You’ll learn legal obligations, common pitfalls, and how EOR enables you to hire in China without entity and smoothly transfer employees after entity closure—without losing your competitive edge.

2. What Happens When You Close a Company in China

A. Legal & Compliance Requirements

Closing a Wholly Foreign-Owned Enterprise (WFOE) in China involves a formal liquidation process:

1. Form a liquidation committee within 15 days after dissolution trigger, usually comprising three members including directors
2. File public notice & notify creditors—45 days for standard process, or 20 days via simplified deregistration
3. Liquidate assets & settle debts in priority: committee costs, employee wages & social insurance, tax, then other debts
4. Complete tax clearance & submit liquidation report to SAMR, tax bureau, SAFE, Customs, social insurance authorities
5. Obtain deregistration from authorities once all clearances are received

This process typically spans 9–12 months, with tax clearance often the most time-consuming

B. Obligations in Employee Termination

China’s Labour Contract Law requires:

• Notice or pay-in-lieu: Employers can terminate with 30 days’ written notice or one month’s salary
• Severance pay: One month's salary per year of service (0.5 year for ≥6 months) capped at 12 years or 3× local avg. salary
• Special rules: In layoffs, due process, use of annual leave, and maternity protections must be honoured 
• Mass layoffs: 20+ staff or ≥10% requires 30-day notice to workers and local labour bureau approval

Failing to follow these can lead to labour disputes, fines, and invalidation of termination.

3. Risks of Talent Loss During Entity Closure

• Operational disruption: Projects stall without local leadership 
• Knowledge & IP drain: Insight and proprietary data may vanish with departures 
• Client fallout: Trusted contacts may be lost 
• Re-entry cost: Rebuilding presence involves redeployment and extended ramp-up 

4. Options to Retain Employees Without a Legal Entity

An EOR in China becomes the legal employer, offering statutory benefits and compliance while you retain management of local staff—ideal for hiring in China without entity.

Explore AYP’s Employer of Record China.

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5. How EOR Helps You Retain Employees in China

What an EOR Actually Does

AYP takes on the legal responsibilities, including:

• Drafting compliant labour contracts
• Processing payroll, taxes, social insurance
• Handling notices, severance, and leave pay
• Managing HR admin, filings, and disputes

You maintain daily direction and performance oversight.

Employee Transition: Step‑by‑Step

1. Planning: Identify essential employees 
2. Terminate existing contracts with proper notice/pay-in-lieu 
3. Onboard with AYP under new compliant contracts 
4. Ensure continuity: same salary, role, benefits 
5. Operate as usual: you manage work; AYP handles compliance 

This ensures a smooth employee transfer after entity closure, retaining talent during transition.

Why AYP?

Onboard talent across Asia in days — no entities, no legal risks

• Local expertise. Regional reach
• Fully managed compliance & payroll
• Transparent pricing — no hidden costs, ever

Discover our EOR China solution.

6. Case Study: 100% Retained Team Post-Closure

Business: Singapore-headquartered B2B software firm

Team: 18 staff across R&D and customer support

Challenge: Close WFOE while preserving regional delivery capacity

Solution: Engaged AYP EOR before issuing terminations

Outcome:

• All 18 employees retained under AYP contracts 
• Compliant processes: notice, severance, layoffs handled
• No disruption to product development or support
• Liquidation completed in under 12 months

“AYP allowed us to close our Chinese legal entity without losing momentum or team cohesion. It was seamless.” — Head of APAC Operations

7. Key Considerations Before You Close an Entity

1. Timing: Begin EOR onboarding before issuing termination notices—don’t risk compliance gaps 
2. Ensure legal compliance:
   • Use proper notice/pay-in-lieu, calculate severance accurately
   • Follow annual leave and protected group rules
   • Secure approval and notification for mass layoff events
3. Communicate transparently:
   • Clarify continuity via EOR
   • Reinforce assurance around salary, benefits, structure
   • Coordinate with AYP to optimize onboarding scheduling
4. Prepare HR & Payroll:
   • Close out final cycle, transfer social insurance records
   • Ensure payroll and leave data inform new contracts
   • Model the transition timeline clearly for employees

8. Conclusion: Close Confidently & Keep Your Talent

Closing your Chinese entity doesn't need to create talent loss. With an Employer of Record model:

• You cut entity costs and complexity
• Retain institutional knowledge, client trust, and IP
• Ensure compliance with evolving labour statutes
• Maintain operational continuity and readiness to redeploy in Asia

AYP’s EOR China solution enables you to close a company in China, retain employees without entity, and stay agile for your next growth phase—all without disruption.

9. Call to Action: Speak to AYP’s Local Experts

Ready to take down your Chinese legal entity—but keep your team?

✅ Schedule a FREE EOR + closure consultation

✅ Get a complimentary cost simulation

✅ Learn how AYP can onboard your team in days

Retain Your Team Without a Local Entity →