Verification of Chinese companies and contracts in China
How to ensure that you met a trustable Chinese company
To succeed with your business in China, cooperating with Chinese companies that are reliable and trustworthy is vital. After all, the Chinese company that you are handing your money to should be able to improve your business.
With all the Chinese companies that present themselves as reliable and efficient, how can you identify those that commit to their words? You should carefully verify the Chinese company by answering some essential questions:
1. Is the Chinese company a verified business, a scam or a company on the verge of bankruptcy?
2. Has the company that you are now having discussions with broken the laws before?
3. Have they stolen IP - patents - trademarks etc. from other companies, and have they been sued for this before?
In order to reduce risk, you should perform a background investigation that includes an overview of what type of business the Chinese company is doing, the registered business address, registration capital, legal owners, business scope, and much more.
Do a background investigation of the Chinese company before you sign the contract
It is through a thorough investigation that you will be able to obtain valuable information about the Chinese company and pinpoint possible issues or problems that the company has had in the past.
Such a background investigation is crucial because it helps build meaningful business relationships by facilitating an informed decision before you sign a contract with the Chinese company.
This process of doing a background investigation will allow you to identify red flags in different areas such as finance, operations, strategy, culture, and more. You will also be able to identify and assess the risks of doing business with the Chinese company, to identify its past or current business problems.
What we are talking about here is, in fact, a verification of the Chinese company before you sign the contract, so that your company avoid losses and unwanted problems later on.
What should your background investigation include?
We see many companies that are in negotiating with high-risk Chinese companies. The Chinese company might already have been sued many times previously. However, this is not something that you might be aware of unless you investigate the company.
The in-depth background check that you should do on a Chinese company must include information like:
1. Risk information
2. Shareholder information
3. Ownership structure
4. Enterprise background (record of changes, key personnel)
5. Information about the legal representative
6. Business information (tax ratings, business certificate etc)
Whether you are looking to identify a Chinese supplier, a distributor, an agent or a Chinese partner, the importance of carrying out a background investigation to reduce risks before you sign the contract cannot be stressed enough.
In Nordic China Business Hub we do the background investigation ourselves or through our partnering Chinese law firm.
Verification of contracts in China
We would also like to raise a warning about another risk-problem that many companies face when doing business in China. Many foreign companies are not aware that their contracts must be drafted and verified according to Chinese laws.
It is important that you draw up and verify your contracts according to Chinese standards, so if anything would happen in the future you have a fair chance before the Chinese courts.
In China, you must have bilingual contracts with English and Chinese or contracts with only Chinese.
And if you want the English language version of a bilingual contract to prevail, you must expressly specify this within the agreement. Why is this important? If your contract lacks a clear direction of what language to prevail, the Chinese court will usually rely on the Chinese language version of the contract.
The best practice for the execution block at the end of the contracts you are using in China is to include the following:
The date of the signature
A company stamp often referred to as a ‘chop’
Signature of the legal representative and their title;
And the business names in both English and Chinese characters.
In Nordic China Business Hub we translate contracts into Chinese and verify them through our partnering Chinese law firm.
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