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If A equals success, then the formula is: A = X + Y + Z. X is work. Y is play. Z is keep your mouth shut.” Albert Einstein.

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Our firm helps aspiring business owners turn ideas into viable business opportunities. We accomplish this by seeking on-going relationships with our clients, advising clients on a variety of business formation issues, and routinely helping clients throughout the course of their business. China Law Blog often takes preventive steps on our clients' behalf to ensure their interests are fully protected.

If you are interested in learning how a lawyer from our firm can help you reach your business formation goals, contact our firm to arrange a consultation. At China Law Blog, we give clients honest assessments regarding attorneys' fees. We also offer evening and Saturday hours to accommodate busy schedules.

Advising New Business Owners on Choice of Entity
Our firm advises new and aspiring business owners on the legal, financial, and contractual issues related to starting a business. We advise clients during the process of choosing an entity such as LLC, corporation, S corporation, non-profit, partnership, and LLC. Determining the appropriate entity under which a business should operate will be based on a variety of factors. We ask clients questions such as the following:

l       Who are the owners?
l       Who will be the members and the managers?
l       Who will be the directors?
l       What are the business's liability limits?
l       Where will you be doing business?
l       With whom will you be doing business?

Depending on the entity chosen, we help clients with other legal aspects of business formation including:

l       State Employer Identification Numbers
l       Shareholder agreements
l       Operating agreements
l       By-laws
l       Employment agreements
l       Employee manual
l       Severance agreements
l       Acquiring Commercial Property

If you are interested in buying commercial property for your new business, China Law Blog can help. We offer experienced representation during the process of acquiring land, offering a full range of services before, during, and after closing.

Our firm also advises clients during on-going business operations including business transactions and business succession planning. We also serve as registered agents for businesses.Contact our firm to arrange a consultation to discuss business formation.



China General Partnership Agreement Sample

The following partnership agreement is a typical partnership agreement used in China. The agreement includes basic terms and conditions of main concerns of the partners. Please keep in mind that you have to retain lawyers to draft the agreement for you according to you specific circumstance. If you are in Beijing, you should find a Beijing lawyer; if you are in Shanghai, you should find a Shanghai lawyer.

This Partnership Agreement is made on [Insert Date] between [Insert Name of Party 1] and [Insert Name of Party 2].

1.Name and Business
The parties hereby form a partnership under the name of [Insert Business Name] to produce [Insert Business Product/Service]. The principal office of the business shall be [Insert Address].

2.Term
The partnership shall begin on [Insert Date], and shall continue until terminated.

3.Capital
The capital of the partnership shall be contributed in cash by the partners as follows:
• A separate capital account shall be maintained for each partner.
• Neither partner shall withdraw any part of their capital account.
• Upon the demand of either partner, the capital accounts of the partners shall be maintained at all times in the proportions in which the partners share in the profits and losses of the partnership.

 

Why and How to Draft a Partnership Agreement in China

The biggest mistake made by partnerships is not having a well drafted partnership agreement. Although China law does not require a partnership to have a written agreement, a well written partnership agreement is strongly recommended because: (1) the default partnership rules typically do not mirror the partners' intent; (2) a clearly written partnership agreement will set forth the essential terms and outline each partners rights and responsibilities, and (3) should a dispute arise between the partners, the partnership agreement will help to resolve a dispute that otherwise might cost tens of thousands of dollars to litigate.

China Law When There Is No Written Partnership Agreement.

When a partnership is formed without a written agreement, the rules set forth under General Principles of the Civil Law of the People's Republic of China(GPC) apply. Pursuant to GPC, absent a formal written agreement to the contrary, all partners are considered to be equal partners. Thus if you intended to have a 60-40 split, too bad. Under GPC the default is 50-50 - each partner owns an equal interest in the partnership, has an equal right to operate and manage the partnership business, is entitled to an equal share of the profits, and is 100% responsible for any and all debts and obligations incurred by the partnership business (even when one of the partners didn't know about the debt or disagreed about incurring it. Unless there is a written agreement that specifies otherwise, GPC provides that disputes are settled by a majority vote of the partners and changes to the partnership agreement must be by unanimous vote of the partners. If there are only two partners, and the partners don't agree, under GPC the partners would be forced into litigation to resolve their dispute. If this is not the agreement you want to have with your partners, it is especially important to have a well written partnership agreement.

 

How to draft a Proforma Invoice - Proforma Invoice Sample

A proforma invoice is an invoice which sets out the terms of the sale and payment arrangements which will be required after completion of the sellers part of the deal. For example, if payment for goods is to be supplied against payment by letter of credit then the pro forma invoice will be sent to the buyer then taken by him to the bank which opens the letter of credit.

The bank will prepare a letter of credit setting out the required documents against which payment will be made. Then the commercial invoice (the one actually being paid against and being entered in the sellers accounts) will be submitted to the bank with other required documents and if all is in order the bank will make payment against that commercial invoice.

In short, a proforma invoice is like a draft invoice from the seller subject to approval by the buyer. A Proforma invoice is an invoice provided by a supplier in advance of providing the goods or service. A quotation in the form of an invoice prepared by the seller that details items which would appear on a commercial invoice if an order results.

 

Pierce Corporate Veil Rule and Assets Protection in china

How A Corporation Provides Asset Protection.

A China corporation can protect (shield) the owners personal assets from the corporate debts, liabilities and obligations. Shielding personal assets from corporate liabilities (Asset Protection) is generally one of the primary purposes of incorporation. However, many business owners who have incorporated their business do not realize that the law allows creditors, and other claimants, to "pierce the corporate veil" of improperly maintained corporations. If a creditor pierces the corporate veil, the creditor can go after the owner's personal assets (home, bank account, investments, and other assets) to satisfy corporate debt, obligations and liabilities. The theory behind this legal concept is that shareholders who blur the distinction between the corporation and themselves should not be allowed to hide behind the corporate veil. To preserve your personal liability protection, to protect your personal assets, your corporation must be considered an entity unto itself, separate and distinct from its shareholders (owners)—you!

How Shareholders of a China Corporation Lose that Asset Protection - Piercing The Corporate Veil.

To "pierce the corporate veil" of a China corporation, a court must find: (1) unity of interest and ownership between the corporation and the shareholders such that the identity of the corporation and the individual shareholders are no longer separate; and (2) that to preserve the corporate identity and allow its owners to dodge personal liability would cause an inequitable result. The key to protecting the personal liability protection afforded by the corporation to its shareholders is for the shareholders to treat the corporation as a separate and distinct entity by carefully maintaining the corporation's separateness through issuance of stock, adequate capitalization, observation of the corporate formalities, proper maintenance of the corporate minute book, and proper maintenance of financial records. These actions will help prevent a potential plaintiff or litigant from proving unity of interest and ownership between the corporation and its shareholders (owners)(some language of this test is similar with U.S. law, because the pierce corporate veil rule of China company law is originated from U.S. law).

 

Legal Analyses and Theories on Offensive and Defensive Measures in Air Products & Chemicals, Inc. v. Airgas Inc. Takeover

Effectiveness and legality of takeover and anti-takeover measures are sometimes uncertain due to imperfect legislation in China. This paper is an attempt to find and suggest practical takeover and anti-takeover strategies under Chinese law through analyzing a case between Air Products & Chemicals, Inc. (“Air Products”) and the target company Airgas Inc. (“Airgas”).
I.    STAGGERED BOARD
Airgas had a nine-member, three-class staggered board according to Article 1, Section one of its charter. Each class of the board served a term of three years. “The term of office of a director shall be stipulated by the company’s articles of association, but each term of office shall not exceed three years.” Article 46, Company Law of the People's Republic of China (“Company Law”).   Clearly, Company Law does not prohibit a staggered board and the mere requirement on the board is its term. Here, the term of each class of the Airgas board was three years. Therefore, Airgas’s staggered board complied with Company Law. This means that even if Air Products could acquire the majority shares of Airgas, Air Products had to wait two years before it could actually control the board. Accordingly, staggered board is an effective way to make a hostile takeover attempt more difficult in China. 
II.    BYLAW
Airgas’s charter required an affirmative vote of at least 67% of the voting power of all shares to change the staggered board provision in the charter, or to adopt any bylaw inconsistent with that provision. It was unlikely for Air Products to change the charter, so they proposed a bylaw in Airgas’s annual meeting in September 2009, in an attempt to reschedule Airgas's next annual meeting on January 2010 and reduce the full term of incumbent directors by eight months. “The annual meeting of the shareholders general assembly shall be convened once a year.” Article 101, Company Law.  Rules for the General Meetings of Shareholders of Listed Company Article 4 more specifically provides: “[t]he sessions of the general meeting of shareholders can be divided into annual sessions and temporary sessions. The former shall be held once every year within 6 months upon conclusion of the previous accounting year.”  Here, since its fiscal year ended on March 31, Airgas’s 2010 annual general meeting must be held between April 1 and September 31, 2010. Air Products’ proposal of the annual general meeting was on January 2010, three month earlier than the mandatory range of time. As a result, a court would probably find Air Products’ bylaw proposal invalid.

 
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I am a licensed China lawyer. Most clients are foreign nationals and companies. China Lawyer Blog have associates in Beijing, Shanghai, Tianjin, Guangzhou, Suzhou, Nanjing, Qingdao, Fuzhou, Hainan, Hefei, Wuhan, Xian, Changsha, Xiamen and Hangzhou. Learn More

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This China Lawyer Blog is aiming at providing better knowledge and understanding of Chinese law for foreigners. Should you have any legal issue in China, do not hesitate to contact China Lawyer Blog for consultation. Preliminary consultation is free. Further legal service, however, will be charged in due rate and in due course.

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China Lawyer BLog AuthorPeter Zhu, an experienced China attorney licensed to practice law for more than ten years, the author of this China Lawyer blog, welcomes any enquiry or consultation related to Chinese law.