When are clients are doing business with a Chinese company, the first thing we recommend is to whether the company is really a legally registered company. This should be done first, before entering into a written agreement, or even negotiations. In accordance with the Company Law of the People’s Republic of China, a company must go through a proper registration process with local government agencies. If a company has not yet been formally registered, it is not a qualified party to enter into an agreement, and there is no agreement.
One prominent horror story from the last decade occurred in when an American company entered into a Licensing Agreement with a Chinese party which presented itself as a company. The dispute resolution term was ABA arbitration. When the inevitable disagreement arose, the American company dutifully filed arbitration with the ABA. When the Respondent did not appear in the hearing, the ABA, a foreign arbitration organization and not recommended for China matters, did not perform due diligence as to the status of the company or its capacity to enter into an agreement. After the Arbitral Award is delivered, Subway International B.V. filed with Beijing No. 2 Intermediate People’s Court to enforce the Arbitral Award. Only then were the relevant searches performed on the alleged company, to discover that no such company actually existed. The American company was left foolishly holding an arbitration award against a company which did not exist.
You may have a great legal team in USA to take care of the basic terms of the agreement, but none of that is worth much if you are not willing to take the time to confirm the party you sare signing with actually exists. This includes confirming a company’s real Chinese name; I promise the English name they gave you is not their real name. Before you enter into an agreement, whether large or small, with a Chinese company, please, think of your China Lawyer.