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Risks in setting up a partnership agreement

I want to be a partner in a company, headed by a Chinese person, in Shenzhen. I am an Indian. What should I do so we both can keep our rights safe? The company is nearly going to be closed, but I can make it stand again. Any agreement format, or any other thing you can suggest?

ANSWER:

I have some good news, some bad news, some more good news, and finally some suggestions.

The good news is that the laws in China have changed over the past decades and compared to the past, these days overseas investors have the right to invest and manage China-based companies (except for in a few protected industries).

The bad news is two fold

  1. Any mistakes you make in setting up the partnership agreement now, will have serious repercussions later. For example, you need to be very careful about liabilities, profit repatriation, global tax exposure, roles & responsibilities, non-compete and so on.
  2. Unless you, the investor, is based in China or has people you trust looking after the investment, it is very easy for local parties to manipulate the books and take advantage of your investment. If you think China is a safe place to do business, you will enjoy the wakeup call in this blog post:  http://chinasourcinginfo.org/2011/11/11/is-china-really-a-dangerous-place-to-do-business/

Now some good news. Foreigners can invest successfully in China. I have been doing business here 12 years, and knock on wood, no major problems with partners and legal systems. But I had good advice when I set up my businesses and I keep a close eye on things myself and also engage the help of professional 3rd parties- especially for legal, tax and accounting issues.

I have taken the liberty, in separate email, of introducing Thaddaeus Mueller of www.Fiducia-China.com.  They are the 3rd party that has advised me on issues of business formation, tax and accounting oversight and compliance.  In short, their firm helps overseas investors safely set up and manage partnership agreements.

Thanks again for your question. I hope my reply was helpful to you. I am based in Shenzhen, so let me know how your business works out. Perhaps we can meet up some day!

Wishing you successful China sourcing!

Question answered by Mike Bellamy, host of “Ask the Experts” at the China Sourcing Information Center.

Mike Bellamy is an Advisory Board Member & Featured Blogger at the not-for-profit China Sourcing Information Center (www.ChinaSourcingInfo.org). He is also the author of, “The Essential Reference Guide to China Sourcing” (chinasourcinginfo.org/book) and founder of PassageMaker Sourcing Solutions (www.PSSchina.com )




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