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Different Concepts Of Due Diligence In China

Which are the most authentic means to verify a China company? These simple two methods are needed: 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 will find these simple company information at local AIC: date of incorporation, address, legal representative, registered capital, contact information, business setting, business type, business term, annual inspection performance, etc. Most AIC websites have a company search function for a small fee.

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

Pollution: It may also be ideal to have core samples extracted if the ground has been utilized for business functions. Labs exist in Hong Kong now approach these. However, most commercial land in China is polluted, however the concept of polluter pays is still in its infancy in China. It is sensible to find out the scope of damage in the ground, then use any untoward results as either a method to work out a lesser land value, or perhaps reach agreement over whose liability clearing it up is going to be. Local governments are beginning to assess pollution damage, and if your JV is sitting on such land you may have to pay out to have it cleared up.

Legal due diligence just before committing to a joint venture in China is therefore a requirement not only to find if there will be any skeletons lurking, but also to determine where the existing managerial operations are in the actual company and what must be changed to take it into compliance both with an increased amount of attention through the Chinese regulators but in addition with the international standards the foreign buyer must adhere too. Consequently, legal due diligence both shows peace of mind in the actual circumstance, can raise any areas of concern, and in addition provides a blueprint for what needs to be done to upgrade the potential businesses future integrity.

IP: You’ll want to ensure that most of IP you may have been using in a supplier relationship is still under your ownership. Suppliers have been seen to ‘helpfully’ register your own brand in China, and then omit to allow it back. If you’ve been using your supplier also to help get you recognized, these kinds of issues have to be investigated. IP agreements and technology transfer, we will cover in a later article.

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