To Establish an Arbitration Committee in China

I recently do some research on establishing an arbitration committee at the instruction of our client. I am not sure whether the client really intends to establish an arbitration committee by himself, if it is true, it’s indeed an excellent idea, despite of the difficulties in practice. Having always been a party to a case or an attorney representing a party before judges or arbitrators, it does feel good to be an arbitrator or control an arbitration committee.

The obstacle, however, is big. The most difficult part is to get the permit from the government. According to China Arbitration Law, the government of a city or municipality has the power to organize departments and relevant chambers to establish an arbitration committee, which means, as a non-governmental organization, mainly refers to commercial chambers, can only participate in the founding process, and the discretion is in the hand of the government.

So, as a commercial chamber, there is an opportunity to be one of the founders of an arbitration committee subject to the support and organization of the government. The specific requirements and documents are as follows.

Requirements

(1) It shall have its own name, domicile and Articles of association;
(2) It shall possess the necessary property;

(3) It shall have its own members; and
(4) It shall have appointed arbitrators.

Required documents

(1) Application letter

(2) Official documents regarding establishing an arbitration committee issued by the government of the city or municipality.

(3) Articles of association

(4) Proof of necessary fund

(5) Proof of domicile

(6) Duplicate letter of employment of its members

(7) Name list of the arbitrators

Published by Mike Wang on August 26th, 2016 tagged Uncategorized | Comment now »

The Number One Thing You Must Do To Sell Your Product in China

Everyone knows about China’s large population, and large, growing middle class. Foreign companies are falling over themselves to get into this market with quality branded products. Typically they bring their foreign Trademarks and brand names with them.

While we are sure your Trademark are very clever and unique in your native language, none of that translates to the Chinese consumer. The vast majority of Chinese do not speak English, even fewer speak French, German, or other European languages.

In this circumstance, you are going to have to adapt your brand name into Chinese to successfully break into the Chinese market. A Chinese product name is required by law anyway, and a Chinese name will be more recognizable for the Chinese consumer, which is the whole point of having a trademark.

This can be done through direct Translation, if your brand name is a otherwise commonly used word, or Transliteration, if your brand name has a distinctive sound, but no real meaning. Successful transliteration is done by finding the right set of Chinese characters that sound similar to your brand, while conveying uniqueness or some kind of positive imagery or feeling in the native Chinese speaker. Good transliteration requires a native Chinese speaker. When picking a Chinese character, it is important to avoid one which has a negative meaning or which has little resonance with Chinese consumers. Don’t worry. Our China Trademark Attorneys can help.

Foreign Companies which register their foreign trademark in China, but do not register a Chinese translation or transliteration of the mark may find that their Chinese partners or distributors, or just a happy customer have taken that liberty for themselves, and are now marking other products or reselling the same products under their own Chinese version of the Foreign Company’s Trademark.

Published by Jacob Blacklock on August 25th, 2016 tagged Uncategorized | Comment now »

A practical guide to ensure a long prosperous career

Published by Christopher Fung on August 24th, 2016 tagged Uncategorized | Comment now »

Get to know some procedures for liquidating your company

As an investor or shareholder of a WFOE in China, when you decide to end up your business, you should take steps according to certain rules and regulations to wind up your WFOE.

First of all, check the Company Law and your Articles of Association, and you may have to prepare a Shareholder’s Resolution accordingly which incorporates your decision as to liquidate the WFOE and the composition of the Liquidation Committee.

What’s the role and rights of a Liquidation Committee? Article 71&72 of the Implementing Rules for the Law of the PRC on Wholly Foreign-owned Enterprises reflects that if a WFOE plans to end up its business and de-register itself before Chinese authorities, it may have to select candidates for a Liquidation Committee which will carry out their duties and responsibilities during the liquidation procedures. A Liquidation Committee must be composed of the Legal Representative of the WFOE, representatives of the creditors of the enterprise and representatives of the relevant competent authorities. Besides, persons such as accountants and lawyers registered in China may be invited to serve on the committee. After being established, the Liquidation Committee may then convene creditors’ meetings and take over the management of and administer the property of the enterprise. Also, they may have to prepare a balance sheet and a property list thus to assess the value of the enterprise’s property and distribute them in order. Furthermore, they will prepare a liquidation plan which is supposed to be submitted to relevant authority for approval later, and they may also exercise their power as representative of the WFOE during any litigation regarding the WFOE itself.

Secondly, you need to prepare list of documents as required by specific authority including Commerce Bureau and Administration for Industry and Commerce to file your business licence de-registration application and the liquidation plan on-site for approval. Be aware of the requirements provided by each authority since they may change a little bit from time to time in different areas.

Moreover, when you accomplished de-registration of business licence, you still have to go through procedures regarding post de-registrations which may include Tax De-registration before the State and local Tax Administration and de-registration with customs if you engaged in import/export business.

The liquidation procedures may be onerous and complicated, and each step may involve bunch of legal instruments which need to be prepared with. Thus it is highly recommended to employ professional attorneys and accountants to help you efficiently get through all of these. If you have any other question regarding winding up your company, feel free to contact us, please.

Published by Crys Zheng on August 23rd, 2016 tagged Uncategorized | Comment now »

Buying from China: No, It’s Not Fair.

We get a lot of inquiries for our China Lawyers about product quality issues. Typically these are not for a lot of money, anywhere from less than a hundred USD to about $100,000.

For the lower value complaints the situation is normally a purchase of shoes, a dress, or something like hair extensions from an online marketplace. Either it’s the wrong kind of shoe, or the wrong style or color dress, or the material is clearly fake or low quality. There has even been one guy which approached our firm with a story and photos of how he purchased an “all natural” wood watch band from a China online shop which gave him chemical burns. Yikes!

Higher value (though still law from an international law perspective) complaints typically go something like this:

“We are a small company, we found a Chinese partner online, product samples were good, they demanded prepayment and we agreed, we sent pre-payment, they sent the product but it is all Broken/Poor Quality/Bricks/Sand/A completely different product.” Pick one.

For the smaller individuals my recommendation is: Don’t buy from China. Whatever consumer protection laws you think apply to this Chinese “company” selling you fake hair on the internet simply don’t exist. There is no agency that will look into a $300 fake product claim against a Chinese company made by someone resident in the USA, Europe or anywhere else. Filing a police report would probably cost more than the cash already lost on the fake product, and would be equally useless. The police in China aren’t looking out for you, and they won’t do anything about your complaint. They just won’t.

For the high value complaints, typically from a small or medium size company, the above also applies to you for the most part.

We can hit the company with demand letters and phone calls, but they will likely just ignore all of that. A lawsuit might get them to pay, but just getting all evidence ready to file a suit may be prohibitively costly. Most of the time contracts are not existent, or evidence is not preserved, so there’s actually not much case to go on. A lot of times such clients will come to us with a contract only in English, which only gives the “English name” of the Chinese company. These contracts are useless as they do not name a real party. The Chinese company’s real name is only in Chinese.

If you find yourself caught in this situation, call it a learning experience, and then call your China Lawyer. Perform due diligence on your Chinese partner, know who you are doing business with. Draft the right contracts, make sure they name the right China company, and are enforceable in China. Make sure there are real consequences for the Chinese company should they breach the contract.

The truth is that Chinese companies will do what they can get away with. If you don’t hold them accountable, and you don’t create legal responsibilities for them, they will do what they can to get away scott-free with your cash.

Published by Jacob Blacklock on August 22nd, 2016 tagged Uncategorized | Comment now »

China Trademarks: Use it or Lose it

We get a lot of foreign clients seeking to register their Trademarks in China, only find those marks, or something similar have already been registered by a Chinese company. Sometimes this is a Chinese company the client had done business with in the past.

When client’s ask what to do, we advise an examination of the market, to determine if filing a non-use cancellation action may be appropriate. When a Trademark has been registered but has not been used for several years, the mark is susceptible to cancelation.

Any party may file a cancellation action at the China Trademark Office (CTMO); there are no particular requirements that the party have any interest in the mark in China or in any other country.

The cancellation action is essentially an allegation made to CTMO that the Trademark in question has not been used in the marketplace for at least three years. The application may be comprehensive, covering all registered classes, or only targeted to a select group of classes if required.

After a cancellation action has been filed, the burden of proof, to show use of the mark within the previous three years, rests solely with the owner of the registered mark. In most cases if the Trademark holder cannot demonstrate evidence of use, the mark will be cancelled. Alternatively, if the Trademark holder is able to provide some kind of legitimate justification for non-use, the CTMO may choose not to cancel the Trademark. The timeline for an initial decision by CTMO is about one year.

“Use” under Chinese law includes display of the Trademark on goods, packaging, and containers of products, on trading documents, and use in advertisements, exhibitions or other commercial activities. In the case of licensing of a Trademark, a proper chain of evidence must be provided to demonstrate the licensee is using the Trademark with the express permission of the Trademark holder.

Published by Jacob Blacklock on August 18th, 2016 tagged Uncategorized | Comment now »

What should be taken into consideration when you rent an office for your new company?

Article 7 of the Company Law states that the business licence shall include the information of domicile.” Having a domicile is regarded as one of the prerequisite for establishing a company in China. During the course of the establishment registration before administration for industry and commerce, the authority needs to verify the ownership certificate and the use purpose of the domicile, and sometimes, the officials will visit the premises in person to scrutinize the environment there before granting their approval for registration.

In order to get an address well and conveniently registered as the new company’s domicile, lots of investors choose to rent an office. There a three main things need to be carefully noticed when you rent the office from the landlord:

1. Pay attention to the use purpose listed in the ownership certificate of the premises.

There are two kinds of use purposes provided for each premises. One is residential purpose, and the other is commercial purpose. Only the premises for commercial use could be registered as the company’s domicile. The application accompanied by an address of a place for residential use only would be definitely rebutted. Thus, it is wise to keep an eye on the use purpose of your target office.

2. The lease agreement should be signed by the individual investor or the authorized signatory of the unit investor either in its own name or in the new company’s name.

One would probably ask the question that what if the new company fails to be established, then, who will bear the obligations or liabilities set forth in the lease agreement? Provisions of the Supreme People’s Court on Several Issues Concerning the Application of the Company Law (III) clears the problem that if a company fails to be established due to some reasons, any creditor may claim all or part of the promoters to bear joint and several liabilities for paying off the expenses and debts incurred in the establishment of the company. Of course, if the new company is finally established, it will bear the contractual obligations and liabilities by itself.

3. You need to inform the responsible person taking in charge of the property management of the target office to upload the office information and its address onto the AIC’s address information platform. Then, after completing the documented or on-site check, the AIC will make a decision on whether or not to approve the address to be registered as an office for your new company.

Published by Crys Zheng on August 17th, 2016 tagged Uncategorized | Comment now »

China Contracts: 101

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.

Published by Jacob Blacklock on August 16th, 2016 tagged Uncategorized | Comment now »

China Opens up to Foreign Investment Firms

To the perennial regret of foreign investment funds and managers, market entry for foreign companies and individuals in this sector has always been restricted. Official guidelines in China limit foreign ownership in such securities investment funds to no more than 49%.

Things changed on June 30, 2016 with the issuance of a new document from the Asset Management Association of China (AMAC). The document, officially titled the Tenth FAQ on Relevant Questions Regarding the Registration and Filing of Private Funds (the FAQ). The FAQ, approved by the China Securities Regulatory Commission (CSRC) presents an intriguing change in the official position on foreign investment in the sector. According to the FAQ “eligible” Wholly Foreign Owned Enterprises (WFOE) may register with AMAC as private securities fund managers and may carry out business activities as private securities fund managers, including by trading securities via the secondary market.

This is a big break from previous regulations and represents follow through by China on promises made to Foreign governments at official forums indicating China would open up this kind of investment.

Still, a lot hinges on that word “eligible.” According to the FAQ an eligible WFOE will Exist as a company incorporated within the territory of the PRC, and its foreign shareholder shall be a foreign financial institution licensed and/or approved by the financial regulatory authorities in its home jurisdiction, and such securities regulatory authorities shall have signed a memorandum of understanding on securities regulation cooperation (“MOU”) with the CSRC or other institutions recognized by the CSRC.

There’s always a catch.

This breaks down to require the securities authorities of a foreign investor to agree to cooperation with CSRC on securities regulation cooperation before any investors from that jurisdiction would be eligible to offer these services in China. As of right now, there’s not much information on what kind of regulations or what extent of cooperation the CSRC would demand from a foreign jurisdiction as part of one of these MOUs.

In practice, many foreign financial institutions wish to use the special purpose vehicles (“SPVs”) incorporated in Cayman Islands, Virgin Islands or Bermuda as a WFOE’s shareholder in consideration of tax issues. However, as currently there is no MOU between those areas and China’s CSRC, those SPVs do not meet the requirements for WFOE’s shareholder prescribed by the FAQs. Of course, no one would be surprised to find these offshore locations are eager to conclude such and MOU to attract this very particular set of investment funds.

Additionally, the WFOE and its foreign shareholder have not been subject to any material penalty by a regulatory authority or judicial organ in the past three years;

Because different regulators have different regulatory standards we recommend the target WOFE and its foreign shareholder should have no regulatory or judicial penalty or investigation over the past 3 years. This does also apply to foreign government agencies and judicial decisions. Still, this is relatively easy to comply with.

Finally, its foreign de facto controller (if any) shall meet the requirements set forth in items 2 and 3 above.
In addition to the requirements set forth in the new FAQ WFOEs must also comply with all other standard industry regulations in China, including the Law on Securities Investment Funds, the Interim Measures for the Supervision and Administration of Private Investment Funds, the Trial Measures for Registration of the Private Investment Funds Managers and the Filing of Funds and other laws and regulations.

Keep in mind the WFOE will be required to comply with all regulations of the China State Administration of Foreign Exchange, and the investment decisions made by the fund must be made “independently” without any influence of any foreign institution. What this means in practice, and how it would be proven remain to be seen. Not many foreign funds would want to leave their China operation totally without guidance. In fact part of the appeal of global funds is the ability to offer a coordinated global investment approach. This may be hindered if investment decisions made in China must be made entirely independently, and if enforced, this could hurt the appeal of establishing such China investment fund in the first place.

It is important to note finally that there will be no registration differences between private securities investment WFOEs, Joint Ventures, or entirely domestic funds. The CSRC has expressed its intention to fairly regulation foreign investment funds in accordance with existing regulations. This is good news for savvy fund managers seeking to get into the China market. It may also be a good move for the industry in China as it may lead to new investments and a changing and competitive marketplace.

Published by Crys Zheng on August 15th, 2016 tagged Uncategorized | Comment now »

Be careful with the service of your legal instruments!

Our law firm has many corporate clients, and they are all masters in different industries. As you may know that the one doing business in China may have to either go through administrative procedures to at least be qualified to start or continue operation in certain areas or complete certain judicial proceedings to safeguard their business, rights and/or interests. No matter to issue official approval/certificate or to make decision of penalty, service of legal instrument including without limitation, approvals, certificates, punishment decisions, administrative verdicts and so forth, should be considered as one of the most essential administrative acts taken by certain authorities during the administrative or judicial proceedings.

Will it be a big deal if any legal instrument is not serviced? The answer would be “YES”. As what has been reported, you would be granted a qualification as one legal representative of a company when you have no idea about the application for setting up the company at all. Or, sometime, you might be fined without even noticing any official decisions. Although this kind of official negligence happens rarely, one of our clients did encounter once, as the client noticed that an administrative decision which annulled one of its qualifications was wrongfully serviced to another company.

According to opinions of theoretical jurisprudence, if the officials have issued legal instrument regarding their decisions on some of your issues, but the legal instrument has never been serviced to you, neither the validity of the decision nor the impact caused by those decisions upon you should be sustained or acknowledged, which is to say, that you should never be bound by any decision made without going through the due course of service procedures. However, the theory is incompatible with the current legal system, as there is no legal proceeding designed for any complaint to claim for justifying the invalidity of such non-serviced decisions. Therefore, to help our client out of the troubles brought by such non-serviced decisions, we have to find out another strategy which is to claim for rescinding such decision based on its violation to certain statutory procedures according to Article 70 of the Administrative Procedure Law. Ironically, according to theories and provisions, the definition of “rescind a decision” means to firstly recognize the validity of that decision. Although we doubt the validity of the non-serviced decision, we have to resort Article 70 as it is the best clause that we may utilize to save our client.

Now you may see that sometimes, when there is omission in laws or regulations regarding solution of certain legal issues suffered by our clients, we will have to strive for finding out the existing legal basis that may be the best way to protect the clients. That’s how we acted for the above mentioned client, and that’s also how we will act for you.

Published by Crys Zheng on August 9th, 2016 tagged Uncategorized | Comment now »