Doing Business in China

Business Negotiations in China tactics  Essential Ingredients to Negotiate

The following components should be included and agreed upon in the negotiation process with your potential partner in the PRC:

Definition of the ventures business. What is the business, what goods and/or services will be performed? What is it's size and capitalization needs? What will it make or assemble? Of the output of the operations, what percent will be for each partner? Effectively, define the nature of the business.

Terms of Equity Investment. Define what the partners will invest in terms of cash, equity, capital, facilities to the venture. Also, identify and agree to whether the venture will take out loans for leveraging and if either of the partners will offer loan guarantees.

Charges from the parties. Discuss and agree upon what charges and or support will be provided to the venture and whether it is part of the investment or to be billed to the enterprise.

Percentage of ownership between partners. Most likely, the foreign company will want majority ownership with51% ownership being most common. The percentage of ownership will determine the level of investment and risk for both partners but it will also force discussion around issues of further growth and investment in the business as the minority partner may not wish to add further investment into the business, preferring to fund growth from profits of the business.

Board Members and Voting Rights. How many members, what is the voting rights of each party allowed in the board. This is inter-woven with protection of minority rights.

Protection of Minority Interests. The rights of the minority member must be contractually assured in some manner, lest the board makes decisions in the interest of the majority partner.

Currency for Transactions and Equity investment. Agree upon US dollars terms or Reminbi.

Protection of Trademark an Patents. Utilize your attorneys to assure these rights are not given away to either the venture or the other party. An issue not to be taken lightly.

Financial Business Case. Prepare and agree to the Profit and Loss, Balance Sheet and Cash Flow of the enterprise.

Repatriation of Profits. Agree upon how profits will be returned to the shareholders and/r re-invested into the business.

Termination Clauses. Company attorneys should advise and establish termination clauses suitable to each company, thoroughly considering all the potential acceptable reasons for termination. Include termination penalties.

Business Negotiations in China tactics  Essential Ingredients to Negotiate