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Businesses must familiarize themselves with the new Foreign Investment Law to ensure they are complying with the latest corporate establishment and due diligence regulations in China. This article is to introduce basic information and a few points regarding setting up a Joint Venture in Shanghai for your reference.
Article 42 of the new law will repeal the Law on Sino-foreign Equity Joint Ventures (EJV Law), and the Law on Sino-foreign Cooperative Joint Ventures (CJV Law).
Instead, foreign-invested enterprises in the form of a CJV or EJV will need to change their governing structure to a three-tier structure in accordance with the Company Law – establishing the board of shareholders, the board of directors, and manager.
Checking the partner’s business license and operation status: This can provide the investor with valuable information as to who is authorized to make certain decisions in the company, what its registered capital is, the duration of the business license, the address, etc.
Checking the partner’s land use rights: If the Chinese party is providing land, it is important to make sure it actually holds the title to that land and is valued correctly. Illegal land acquisition is a common problem in China, so foreign investors need to be particularly careful when the JV partner intends to inject land as its part of the JV contribution.
Checking financial reports: It is important to ensure that the financial information in the company books is an accurate representation of the company’s financial position as Chinese tax authorities often subject foreign enterprises to a higher level of scrutiny. If in doubt, one can engage a certified asset appraisal firm to conduct an asset appraisal report.
Readers interested in acquiring further information are welcomed to contact us. We are a specialist foreign direct investment practice, providing corporate formation, business advisory, tax advisory and compliance, accounting, payroll, due diligence and financial review services to multinationals investing in China, Hong Kong, Singapore and the rest of the world.
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