Having a sound business plan is only the beginning. The plan needs to be put into practice. The available means of doing business vary among different economies. In China, a business idea can be materialized in various forms, depending on the type of ownership. For decades, there were virtually only two kinds of business entities in China - state-owned enterprises and collectively owned enterprises - because China had a command economy and private property rights were not recognized. However, as China has adopted various economic reforms and embarked on developing a socialist market economy, gradually other types of business entities have emerged.
At the early stage of reform, the Chinese government allowed individuals to become getigongshanghu (). A getigongshanghu, which literally means an individual industrial or commercial household and is thus akin to an entrepreneur, was permitted to engage in certain types of business activities with the assistance of his or her household. Subsequently, individuals were allowed to employ a few workers and engage in a larger scope of permissible business activities. Nevertheless, the private economy did not prosper because, absent formal recognition, private enterprises encountered difficulties in securing approvals, loans, raw materials, etc. In 1988, private enterprises were formally recognized with the passage of the Provisional Regulations on Private Enterprises. 1 According to these regulations, a private enterprise () is a for-profit economic organization having private ownership and employing eight or more workers. Moreover, certain categories of individuals, such as villagers, the urban unemployed, retired people, and getigongshanghu, are authorized to establish private enterprises in the form of a sole proprietorship, a partnership, or a limited liability company.
In the 1990s, with the intensification of economic reforms, including the reformation of state-owned enterprises, the expansion of foreign investment, and the increasing significance of private enterprises in the national economy, China enacted a series of basic laws and accompanying implementation regulations and/or rules, providing detailed guidance on sole proprietorship, partnership, limited liability companies, and companies limited by shares. The promulgation of these legal rules not only established a basic framework for regulating business organizations in China, but also made Chinese business entities more in line with those in other market economies.