Legal Due Diligence In China

  • SumoMe

What are the most authentic ways to verify a China company? These simple two methods are important: a. Look at the company address; b. Visit local authority that is accountable for company registration. The appropriate authority is the local Administration of Industry and Commerce (AIC). You can get any of these company information at local AIC: date of incorporation, address, legal representative, registered capital, contact details, business extent, business type, business term, annual inspection performance, etc. Most AIC websites provide a company search function for a small charge.

Basic Required Documents when getting stock in a Chinese company: Company documents: articles of association, business license, WFOE approval, listing and track record of appointment of directors and officers, etc.; Annual audit and taxation assessments and all communications with and notices in the tax authorities, both national and local; Real estate documentation: ownership, lease, mortgages, etc.; Employee list, and replications of employee contracts and records for tax and social welfare payments; Insurance documents; Significant existing contracts with vendors and customers; Present financial statements; Record of distributions to shareholders; Listing of lawsuits and other claims, if any; Listing of hard belongings and vehicles; Intellectual property: trademarks, patents, copyrights, technology licenses; Index of loans payable and guarantees payable and contingent, if any; Environmental approvals/licenses and annual environmental inspection reports.

The most important variations we end up finding from a Chinese company acquisition and a domestic company acquisition are the following: Many, it not exclusively of the documents of the Chinese company are, practically enough, in Chinese. China requires far more government sign-offs and registrations versus the United States. But in general, the goals and the strategies are not all that different. In both cases, the aim is to find out as much as you can about the company to be acquired and to format the sale in such a way as to maximize the profits for your client moving forward.

Legal due diligence prior to committing to a joint venture in China is therefore a requirement not just to find if there are any skeletons lurking, but in addition to find out where the present managerial operations are in the present company and what really should be changed to take it into compliance both with an increased amount of attention from the Chinese authorities but also with the international requirements the foreign trader must conform too. Consequently, legal due diligence both shows reassurance over the actual scenario, can raise any areas of concern, and also offers a blueprint for which must be implemented to upgrade the possible businesses future integrity.

Business Licensing: Is the Chinese companies’ existing setting of business suitable for the intentions for the joint venture? Are all the required operational licenses set? Are they transferable to the joint venture? They are all points that need to be responded to, and the procedure for these licensing rights accomplished to transfer them where required to the JV. It is also valuable for the investor to notice expiry dates on these, and make certain that renewals are executed on time. This is also true of the Chinese company. Business licenses in China have to be renewed. If his license to function expires in 12 months and you are choosing upfront finance for a 20-year joint venture, you should measure the risk factor of his own licensing renewal scenario. It can also be a good idea to check that the name of the legally responsible person on the Chinese business license is the same as anyone you are managing, and if not, pinpoint why.

Considering getting a legal due diligence report, then visit our website for more articles and resources on how to have a legal due diligence completed for your potential business purchase today.

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