You’re going to lose money.

You’re going to lose sleep.

You’re going to lose your patience with China and it won’t be China’s fault.

These are just a very few of the reasons why you shouldn’t open a restaurant here — anywhere, really — and yet for some people, the allure is just too strong. Never mind that you’d make way more money buying an apartment in suburban Shanghai and waiting five years to sell.

For those of you I can’t dissuade, I introduce you to Nicola Aporti, one of the rarest breed of lawyers in Shanghai, a lawyer (qualified in Italy) who specializes in food and beverage law in China. He works with domestic law firm HFG, has been here more than a decade, and helps both big companies who need IP or regulatory assistance down to small groups of investors who want to buy out an existing restaurant, and down even further to people who want professional help going through a tricky legal process.

Without further ado, then here's the legal guide to opening a restaurant in Shanghai.

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Step 1. Have an idea and find the money.

The people with the idea and the people with the money (the investors) are often not the same. Let’s assume you’re the one with the idea for our restaurant, say a Russian caviar bar. But you don’t have cash. For you, the first step is to find people with money who believe in your idea and ability to execute it.

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2. Formalize the relationship in an investment vehicle

This is typically done in Hong Kong, the British Virgin Islands or Singapore, where laws are exceedingly business-friendly and investment controls are not as strict as China. This is going to be your first company. Let’s call it "Big Caviar". You own 20% for putting in the idea, the investors own 80% for putting in the money. This step will take about a month and at the end, Big Caviar will be a legal entity.

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3. Set up a company in China

If there are any Chinese people involved as investors in the Chinese company, it’s a "Joint Venture". If not, it’s a "WFOE", a wholly foreign-owned enterprise. In practice, Aporti says, he often sees joint ventures fail miserably, and not for any sneaky, malicious reason, but simply that partners often have different goals and motivations and ideas about running the business that don’t emerge until they are actually running the business — how quick they expect a return on their money, how creative they are with compliance, how to manage HR, balancing quality versus cost-saving, and so on.

Setting up the China company will take about a month also. Legally, you set up the China company so that it’s a subsidiary of your offshore company, ie., Big Caviar. So let’s call the China company Medium Caviar. It should ideally be registered as a catering management company, and each physical location (Small Caviar) will be a branch office i.e., a restaurant. Immediately after incorporation, you’ll be applying for all your tax stuff.

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4. Open your bank accounts

Most foreign businesspeople like to do this – at least for the registered capital account – with local branches of international banks like Deutsche Bank, BNP or HSBC, for the familiarity and perceived safety of keeping their main chunk of money, their registered capital, with a brand name. For other operations, three other bank accounts are needed, each with a specific purpose (RMB basic account, RMB general account, foreign exchange settlement account). Usually those accounts are opened at one of the Big Five Chinese banks and are used for your day-to-day needs, such as to pay taxes, to operate WeChat accounts, paying salaries, landlord, suppliers, whatever.

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5. Find a location

This is often the biggest headache of the many headaches involved in setting up a restaurant. Do you want a street-side location? Are you willing, and able, to go into a shopping mall (shopping mall landlords are very discerning at the good malls – not just anyone can rent a space)? That charming Xuhui space might fit your concept perfectly, but it’s much more likely to have license problems, neighbor problems, problems on top of problems. The shopping mall location, if you can get it, won’t have the license or neighbor issues, but you are going to be paying a premium to be in a mall.

And, of course, there is the issue of availability, what with so many buildings being clawed back by the government in the past 12 to 18 months. Once you have chosen a location, you have go to through the legal due diligence on the space to make sure the landlord has the right to rent to you, to make sure the space can be a restaurant, environmental approval, fire certificate and on and on. And then you set up your branch company. Small Caviar Xintiandi, for example. This is why you need a lawyer.

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6. Design and build the restaurant

A minor detail, of course. Architect, interior design firm, branding agency. What color is your menu going to be? How many mirrors? Is your kitchen 30% of the total size of the restaurant, as per law? Does it meet all the quality supervision bureau, CFDA, fire and environmental bureau requirements? Does it look nice? Is it going to cost a fortune? Details, details.

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7. Apply for the Two Big Licenses: food operation license and environmental protection license

Aporti’s hobby is taking pictures of people’s food license and then studying how well they match the menu – purely for fun and as a way to keep learning, he swears. He once counted how many “nuances” of food licenses there are. He got bored at 150. It depends on your menu, and your business model. Are you doing takeaway? Are you selling retail products? Are you making sandwiches for people to eat in the shop? Do you sell coffee? Do you marinate? Slice and package on-site? You’ve got to pick all the right sub-categories, sort of building a custom license out of all the available possibilities.

Getting the license includes an inspection and takes about three weeks. “Soft opening” usually means that you are operating before you’ve received this license. Technically, it’s totally illegal. In practice, sometimes it’s tolerated, sometimes it’s not. It’s that lovely China grey area.

The environmental protection license and food operation license have some overlap with the design, and include getting approval of things like the footings for your kitchen walls, and of course, multiple rounds of inspection. They are quite complicated, actually, but I’m going to skip the full process.

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8. Apply for fire certification

There are two fire certificates. One is for the entire building. The building’s landlord has this (or should). The second is for your specific space, and you need to apply for that. This one is notorious for being a headache.

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9. Set up all your internal controls

HR, accounting, food permits, food safety procedures, that fun kind of stuff.

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10. Hire staff, buy food, and open!

Easy! Just hire a couple kitchen geniuses at low wages, dip into the pool of highly talented and available waitstaff, put them in some aprons, and, congratulations, you’re done!

Oh, wait. That’s just the beginning...

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Further associated reading for budding F&B magnates: "The Real Cost Of Running A Restaurant In Shanghai" and "How Your Cocktail Comes to Cost What It Does in Shanghai. Specifically".

Thanks to Nicola Aporti of HFG.