Doing Business in China For Dummies®

Doing Due Diligence

The best way to manage risk is to avoid it! Basically, look before you leap and carry out due diligence (DD) whenever possible. Basically, due diligence means investigating potential aspects of your business, such as partners or assets you’re acquiring. How far you go with DD depends on your particular situation. You have to balance the costs and time, along with how much cooperation you can get from the other side, against the potential risks of the transaction.

Liability can come out of the woodwork in China. Consult with professionals experienced in China in the various DD areas to understand your risks before making any decisions on DD.

The basics: Reviewing the business license

When dealing with another company, look at its business license. The business license is a document that all companies in China must obtain from the Administration for Industry and Commerce (AIC — see Chapter 7).

You can either ask the company to provide its license or hire a lawyer to check at the AIC in the city where the company is registered. If a lawyer carries out the check at the AIC, he or she can do so without the company’s knowledge. The business license reveals several basic pieces of information about the company:

✓	Validity: Find out at a minimum whether the company you’re dealing with is validly established and exists.
✓	Business scope: Check the company’s business scope ...