Due Diligence for Foreign Joint Ventures in China

Due diligence is one of the most important information gathering tool that an investor can conduct before he plans an acquisition. It is the fact that, deals have been finalized only after considering due diligence and economic growth.

If a company or a private business house wishes to acquire another company it will certainly have to consider that company's past and present achievements. Chinese commercial due diligence report provides a comprehensive review of the company's working, its business policies with reference to expected industry competition and market conditions.

Chinese due diligence experts and specialists of each specific sector focuses on major issues of each sector and compare them with previous commercial management experience with some of the world's renowned companies. Each member of the team gives his/her review based on their resources of worldwide industry networks and their expertise.

Due Diligence can highlight potential issues and prevent companies in an uncertain market.

Potential issues

•    If a foreign organization wishes to acquire a company in China, but there is competitive ambiguity such as consumer patterns, new-fangled technologies, legal regulations, or a novel geographic market etc, and if the company needs better understanding on these, it can refer the Due Diligence report.

•    If a foreign company wishes to acquire a Chinese company, and the revenue projections appear to be pretty strict. Financial due diligence report can be helpful.


•    Companies can also refer to consumers and markets trends for better understanding of consumer goods industry in China.
 
By referring to due diligence reports economy can face uncertainties during difficult times.

Company formation in China - An Overview

China has emerged to be one of the most profitable investment centers in the world today. Starting a company in China is certainly a challenging task. It basically has three recognized forms of business organizations under which foreign investors can incorporate their companies; these are Wholly-Owned Enterprise, Joint Ventures and Representative Offices.

The most easiest and effective way to commence a business in China is to start with a representative office. The cost of incorporating this entirely depends on the city and province of registration. However, the foreign company planning to start a business in China must be in operation for at least 2 years. The company has to be financially strong and can appoint 4 foreign representatives including the operating manager to control the working of the company.

A wholly owned foreign company has absolute foreign investment and it is incorporated as a limited liability company, and it has a separate legal entity. It is to be noted that wholly owned foreign company will be taxed according to local legislation.
 

China highly encourages Joint ventures this is because the country can learn new skills, technology, and expertise. In return, the investing company can benefit because of low production cost, low labor cost, and larger market. Joint Venture is the only opening gate to enter china under certain cases since some businesses are still regulated by the government completely.