I figured my first Above the Law post should be something aimed squarely at those who generally read this blog: American lawyers. I also figured I should lead with what I do best and that is scaring the heck out of people.
So I am going to write about four common and egregious mistakes my law firm’s China lawyers often see American domestic lawyers make when representing their clients in doing business with or in China, along with a very brief analysis of what causes American lawyers to make each sort of mistake.
1. Many years ago, a lawyer in the Midwest called us to discuss his client’s desire to form a company in China. This lawyer did not even tell us that his client was in the room. The lawyer asked us the minimum capital the Chinese government would likely require his client put into a Chinese bank to be able to start a business (a WFOE) in China. Based on the nature and size of the business, we estimated $6 to $8 million. The lawyer asked us to confirm that a portion of the required $6 to $8 million could come from factory equipment not cash, and we assured him that it could. At that point, he said, “good,” because his client had already purchased $5 million in equipment and shipped it to China.
We then had to tell him those equipment purchases could not count because they had not been previously designated as going to the WFOE. The lawyer then complained about how his client could not afford to come up with another $5 million and how China was putting form over substance. To which we could say little more than, “yeah”…