Starting a business: how to protect your personal assets✳
This section deals with money and legal liability. What steps could potentially put your own savings, your family’s money, and even your spouse’s funds at risk when opening a shop or forming a company? What does the law say about this? Is it possible to set up safeguards in advance? This section answers those questions without trying to convert the risks into life‑years lost. The items are ordered from the scenarios that most easily threaten personal assets to those that are easiest to avoid. Consequently, items that require only a signature come first, while methods that demand hands‑on effort appear later. Any statements based purely on experience and lacking supporting research are marked as Grade C evidence.
English text comes from the independent translation maintained by dlgrv. New entries without a translation appear in Chinese. The author's Chinese original is authoritative for the latest content. Translation snapshot: dlgrv/HowToLiveBetter · 11818c6
Only invest money you can afford to lose — never use family savings or borrowed funds
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:…
Benefit
Losing money is not the only risk. For sole proprietorships, debts are tied to personal assets if the business…
02Evidence A
Never sign personal guarantees for corporate loans; spouses should definitely avoid signing too
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…
Benefit
The wording in a guarantee contract essentially translates to “if the debtor fails to repay, you are obligated…
03Evidence A
Choosing the right legal entity before launching: sole proprietors and general partners are fully liable, while limited liability companies offer “limited” liability
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…
Benefit
Debts incurred by a sole proprietorship must be repaid using the owner’s personal assets or those of their fam…
04Evidence B
Being a nominal shareholder without actually owning equity
Once your name is registered as a shareholder, you are legally considered a shareholder. You must pay the full amount of subscribed registered capital by the deadline set in the articles of association; failing to do so means you must not only make up the payment but also compensate the company for any resulting losses. If other shareholders fail to contribute their share of the capital when the company is founded, you are responsible for covering that shortfall as well. Even though someone else runs the business, all debts are recorded under your name. (National data, effective July 2024)
Cost
There is no cost involved. If someone asks you to “lend yo…
Benefit
As a registered shareholder, you are recognized as a legal shareholder. You must pay the full amount of subscr…
05Evidence A
Check the Ministry of Commerce records before signing; obtain written disclosures and include a “cooling-off period” in the contract
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 Co…
Benefit
Legal requirements mandate that any franchisor maintain at least two company-owned stores that have been opera…
06Evidence A
Determine the business name, location, scope of operations, and registered capital before registration; with complete documents, you can obtain the business license on the spot.
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. Sin…
Benefit
The regulations specify exactly five required documents: (1) an application form;
07Evidence A
Businesses requiring licenses must wait until they obtain one
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 busi…
Benefit
Authorities designated by law will investigate any unlicensed businesses. For operations without a license whe…
08Evidence A
Figure out which category you fall into: producing or preparing food requires a permit, selling only pre-packaged goods needs a filing, while selling fresh meat and vegetables needs no permit at all.
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 premi…
Benefit
According to the Food Safety Law, anyone running a food business must first obtain a permit. This applies to p…
09Evidence A
Packaging food for sale makes it prepackaged food: labels must include production date, shelf life, and ingredient list without exception
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…
Benefit
According to food safety laws, prepackaged food must have a label that includes the following details: product…
10Evidence A
General foods must not claim therapeutic effects: this applies to labels, instructions, ads, and live-stream scripts alike
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, prod…
Benefit
The Food Safety Law states: “Labels and instructions for food and food additives must not contain false inform…
11Evidence A
The food industry faces criminal penalties: selling meat from diseased animals or products exceeding safety limits is already a crime; adding toxic or harmful non-food substances carries a minimum five-year sentence regardless of revenue
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 i…
Benefit
Article 143 of the Criminal Law governs this category: any food you produce or sell that fails to meet safety…
12Evidence A
Once you obtain a business license, you must file tax returns on schedule — even if you have no income, you still need to submit a return with all zeros.
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 electronical…
Benefit
The law clearly states that “taxpayers with no tax liability during a period must still file a tax return as r…
13Evidence A
Invoices must reflect actual transactions; small taxpayers can fully utilize tax exemptions
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 invoi…
Benefit
Small taxpayers under the simplified tax regime are legally exempt from VAT if their sales remain below specif…
14Evidence A
Scammers pretending to be tax officials demanding payments are fraudsters; tax filings must be done via the e-Tax Service or by calling 12366
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…
Benefit
The State Taxation Administration explicitly states: “Tax authorities never request bank card passwords, payme…
15Evidence A
Writing “deposit” instead of “advance payment” in contracts, specifying penalty amounts, and treating credit terms as loans
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 c…
Benefit
A deposit only becomes valid once the money is actually received by the seller (the effective date is when del…
16Evidence A
Sign a written contract within the first month of employment; register for social insurance within 30 days
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 mu…
Benefit
Employers must pay double wages to employees who have worked for at least one month but still lack a written c…
17Evidence C
Wages must be paid according to contracts and laws; raises, loans, and bonuses all require written documentation
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 wa…
Benefit
Contractual labor agreements must explicitly outline how wages are paid and how social insurance contributions…
18Evidence B
Sell first, then produce: use pre-orders and small orders to confirm demand before investing in manufacturing
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…
Benefit
This randomized controlled trial tracked 116 Italian startups over roughly one year. In such trials, participa…
19Evidence C
Run the prototype through the production checklist before starting full production
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…
Benefit
The main difference between producing one prototype and producing a thousand units lies in where your money ge…
20Evidence A
Keep copies of invoices and supplier documentation for every shipment; avoid purchasing goods priced significantly below market rates: if an employee buys counterfeit products, the employer can still be held legally responsible.
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 esse…
Benefit
Intentional sale of goods bearing counterfeit trademarks incurs serious legal consequences. When illicit earni…
21Evidence A
Whether creating designs yourself or purchasing licensed artwork, simply changing colors or adding icons does not count as “modifications” for copyright purposes.
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…
Benefit
Copyright law treats any unauthorized adaptation, translation, or annotation of a work as equivalent to outrig…
22Evidence B
Following procedures at work — and thinking twice about stepping outside them
Take nurses as an example: regulations clearly state that when a patient’s condition deteriorates critically, nurses must immediately alert a physician; likewise, if they notice any orders that violate regulations, they must bring this to the prescribing physician’s attention. The same principle applies to all other roles — first identify exactly where the relevant rules specify “mandatory reporting.” The law also does not require people to stand by while someone is in danger: if you voluntarily provide emergency care and end up causing injury, you are not legally liable for compensation.
Cost
No cost involved. Simply follow institutional rules, medic…
Benefit
For nurses, statutory duties are defined precisely in this manner. When a patient’s condition becomes critical…
23Evidence A
When losses pile up, follow the proper procedures: opt for simplified deregistration if possible, or file for bankruptcy when liabilities exceed assets — don’t leave things unattended.
If a business owes no wages, taxes, or social insurance payments, all investors can sign a written commitment; after posting it publicly for 20 days with no objections, simplified deregistration becomes possible. Sole proprietorships don’t need such a notice — if no objections arise within 10 days, deregistration proceeds automatically. When debts become impossible to repay, the business should apply to the court for bankruptcy. Neglecting these steps carries serious consequences: the legal representative cannot serve in that role for any other enterprise for three full years.
Cost
Simplified deregistration can be handled on your own: just…
Benefit
All debts — both owed to others and owed by others — are fully paid off. No unpaid wages, social insurance con…