If a Chinese provider wants a deposit or down payment before you buy from them, you should do your homework.
Assume you pay for the things before they arrive. Problems might occur, like the supplier could refuse to send the items, delaying shipping, raising prices, or sending products of lower quality. You might avoid such problems by selecting a supplier you already know in detail.
Because of the first-to-file system when it comes to trademarks in China. This means that those who apply for a trademark first own it. Thus, the protection of the intellectual property is critical in China. In this article, we will discuss the importance of doing due diligence on Chinese suppliers. If you do your homework and understand the Chinese supplier in detail, you can tell if the Chinese supplier is whom it says it is, and will you will ultimately avoid problems.
In China, all legal names are in Chinese.
Before you do due diligence on a Chinese supplier, you need to know its Chinese name. You may get information from legal and governmental institutions using a Chinese name. Other languages have no legal or standard names, while all Chinese people and enterprises have legal Chinese names. So, while dealing with a Chinese supplier, remember that their English or other language names are chosen randomly.
Only if you have the Chinese supplier’s legal name written in Chinese may you sue or file a complaint. A Chinese supplier must give proof of their business license and the business license number in China.
Of course, you should insist on a contract from a Chinese provider. Remember that Chinese enterprises must use their official company stamp for agreements to be valid in China. The Chinese supplier’s full name and business number on the official seal must be written in Chinese. Remember to double-check that the contract is signed by the legal person in the firm using their Chinese name.
If needed, we can help you determine how the company has been registered with the Chinese government and if the information they supplied is correct.
Verify the company address, business scope, key personnel, and shareholders in the Chinese company
Chinese companies are required to register their business scope. While Chinese law does not ban a corporation from doing business outside its primary industry, the tax statement makes it more difficult. Because it must choose one of the items from its business scope for the tax declaration when submitting any of its money to the tax office. If the company is tax-compliant, it cannot produce funds outside its primary operation.
Many Chinese companies can work anywhere other than where they are registered. It implies that it is possible to determine the location of the organization. Due diligence can help you understand their actual business and registration address by doing due diligence and reviewing publicly available marketing materials and sales records.
Chinese companies must register their directors, supervisors, managers, and shareholders with the proper authorities. Also, the company will have one registered legal representative who will deal with appropriate parties on behalf of the company and take personal responsibility for any illegal things the company does.
Intellectual property and lawsuits
You should find out the intellectual property rights of a company, such as trademark rights, patent rights, and copyright files. Suppose a Chinese company owns lots of intellectual property rights. In that case, it means at least that it has put a lot of money into these intellectual property rights and wants to keep running so it can get its money back.
What about the record of public penalties for a Chinese company? If there are many penalties, the company has compliance problems. In addition, we can further see what penalties are imposed. In the case of environmental protection issues, tax fraud, customs penalties, theft of intellectual property from foreign companies, and production and delivery problems, due diligence will help you learn about related lawsuits against the Chinese supplier.
Many Chinese enterprises use intellectual property licensing and sue international companies to collect compensation. You can read more about this here. Suppose a firm is a defendant in most litigation, such as breach of contract or infringement. The company’s reputation is tarnished. If a Chinese supplier has several labor issues, its human resources are unreliable, affecting its contract performance.
Due diligence – with or without the Chinese supplier’s cooperation
Remember, due diligence may be done without Chinese firm assistance. Two forms of due diligence exist. Some due diligence can be done without Chinese firm involvement. Public sources have vital facts. Then there’s due diligence, which requires Chinese company cooperation. The Chinese company must provide information. Since this information could reveal trade secrets, the company won’t give it to you.
We recommend doing due diligence without involving the Chinese company on the supplier you want to do business with in China to save time and effort. We can also help with company-site investigations by our personnel in China if needed.