P Acquisition Agreement
Approval by State-owned Assets Supervision and Administration Commission assets / equity verification
* confidentiality
* taxation
* CEPA
Special purpose vehicle
National Development and Reform Commission Project
State-owned Assets Supervision and Administration Commission purchase of state-owned assets or equity
Ministry of Commerce
* establishment and alteration of foreign-invested enterprises
Administration for Industry and Commerce
* registration
New vehicle: share swaps
Domestic trade protection
Limitation on domestic companies’ listing abroad and round-trip investment
Orientation of tax incentives
1. Targets of policy
2. Industry structure
3. Fibre Raw Materials
4. Technology and equipment
5. Products structure
6. Organization structure
7. Resoureces saving
8. Environment protection
9. Entry to the industry
10. Investment and financing
11. Consumption of paper products
1. Limitation of off-shore vehicles
2. Requirement for the entry to the industry
3. New record of CPI
4. RMB value increase
5. Policy orientation by the government
P confidential agreement
P questionnaires
P interview with the relevant persons of the target company
P investigation in governing authorities examination of the documents, materials and information collected in the interview and investigation
P futher interview and investigation (if necessary)
P due diligence report
« Basic Information
« History Evolution
« Ownership and Organization
« Personnel Operations (licences, approvals)
« Finance
« Assets
« Contractual Obligations
« Legal Proceedings
« Land and Building
« IP Rights
« Licenses and Approval
« Long=term Contracts
« more due diligence, more security
« flexible methods in accordance with the current situation and environment of Chinese market when facing legal risks
Equity Purchase or Asset Purchase?
Equity or Asset
Equity purchase is generally the simplest and quickest method to complete, and it will help the company to retain some special license or qualification.
In an asset acquisition, the acquirer may acquire select assets and liabilities of the target. There, consequently, is an opportunity to carve out unwanted assets and liabilities, and avoid some legal risks.
WFOF or JV?
WFOE or JV
In a WFOE, the foreign investor will have its exclusive decision-making power.
If case of JV, the domestic investor’s commercial resources in the local area may help the development of the company.
Please note: any restriction for WFOE?
Prerequisite
Prices and Schedules
Representations and Warranties
Default Remedies and Indemnification
Dispute Resolution
Assets:
Condition of Assets
Quantity and Quality Assurance / Inspection
Equity:
Base Day
Right of First Refusal of other Shareholders
The Target company is a leading company in Chinese market. The total amount of investment involved in this case exceeds USD 20,000,000.
The services we have rendered in this case included:
Legal due diligence, design of the transaction scheme, coordination and negotiation, and preparation for legal documents.
Background of the Target Company
- private company
- advanced technology and facilities
- actually controlled by a “group company”
- issued questionnaires to the management of the Target and the management of the “Group Company”;
- conducted the interviews with the officials of the Target and the “Group Company”;
The work we did during the investigation
- conducted the investigation in the local governing authorities, including the Administration for Industry and Commerce, Environment Protection Bureau, Labor and Social Security Bureau, Land Resources Bureau, the House Property Bureau and other related authorities.
The problems we focused on
A. the Connection between the Target and the “Group Company”
I. Most of the target’s shareholders are also the shareholders of the “Group Company”; all the target’s directors are directors of the “Group Company”
II. when Establishing the target, its shareholders, to fulfill the contribution, have taken the assets which should legally belong to the “Group Company”;
III. The ownership of the land used by the target is owned by the target while the buildings was built by the “Group Company”
IV. The production equipment of the Target are purchased by the “Group Company” and provided to the Target;
V. The raw materials used by the Target is imported by the “Group Company”;
VI. Part of the electric power used by the target is supplied by the electricity company controlled by the “Group Company”;
VII. The Target is using the trademark belonging to the “Group Company”’
IX. Both parties have no written documents evidencing that the Target has owed a huge amount of debt to the “Group Company”
X. There is a mixture of the assets, funds and expenses between the “Group Company” and the Target.
the problems we focused on
B. the Confirmation of the Target’s Property
a. Land
b. Buildings
c. Material equipments
C. Environment Protection
The Target does get underground water in its production while not obtaining the Permit for Taking Groundwater.
The problems we focused on
D. Labor and Social Security
a. The Target has not paid social security fee complying with the laws and regulations of the state.
b. The employees of the target sould be lawfully settled, and the labor relationship with some key persons of the Target shall be well kept.
Solution:
P Set up a WFOE in
P Purchase the assets of the Target;
P Enter into non-competition agreement and long-term supply agreement with the “Group Company”.
