Due Diligence

Rule number one for succeeding at doing business in China is to have a good partner. The odds of having problems with a Chinese company are much lower when you deal with a “legitimate” Chinese company. That means rule number two is making sure that you are dealing with a legitimate Chinese company.

But how do you do that? How do you distinguish between a Chinese company that is legitimate and one that is not?

The following are the basics for making that determination…

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Looking to do business with a Chinese company? Want to know whether that Chinese company is worthy of your business and your trust? How do you do get information on a Chinese company when certain private investigatory work in China is illegal?

The first thing you should do is conduct a Chinese-language internet search of your potential Chinese counterparty. This sort of search is not likely going to be enough to make you feel good about going forward with a $10 million deal, but it frequently can give you enough negative information on your potential Chinese counterparty to convince you not to do any deal at all.

Next, do your due diligence the old fashioned way. Ask your potential Chinese counterparty to provide you with its government registration documents and, if relevant to your deal, its accounting and tax records as well….

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It takes a big man to ignore a small issue.

A lawyer who lacks self-confidence feels compelled to run down every issue, make every argument, and depose every witness. After all, if you choose to make an educated guess about the importance of a tangential issue, or whether to omit a plausible (but likely losing) argument from a brief, or whether to incur the cost of deposing a just-barely-relevant witness, all may be lost. You might lose the case, and the recriminations would never stop. Better to leave no stone unturned than to leave yourself at risk of being second-guessed.

That’s one reason to hire lawyers with a little self-confidence. They’re willing to take intelligent risks where it makes sense to do so.

Which brings us to the topic of today’s post: Compliance due diligence.

If your company’s considering an acquisition, you can simply outsource the entire compliance due diligence process. Hire Big Firm, ask it to handle due diligence, and wait for the results. No muss, no fuss.

And, at the end of the day, no deal.

No deal, but lots of legal expense.

Why?

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