Sharing of all of the risks and expenses with a partner 5. Greater access to local resources and cheaper labour 6. Strengthen a company's position and win even more market share 7.
Continue to stay competitive in the world space 8. Open up new business opportunities outside of a company's core business. As many pros that there are for venture partners, in the case of a joint venture the old saying of "United we stand, divided we fall" reigns supreme.
If one enters too hastily into a partnership without getting to know one's partner and the objectives of the joint venture, it may present the following disadvantages for an enterprise:. Miscommunication between partners may result in costly business decisions Sharing all the risks and expenses with an unsuitable partner Conflicting management styles may lead to disparity within the company Mismanagement of resources will lead to higher expenditure and waste.
An imbalance may occur in what each partner brings to the joint venture Cultural differences may lead to confrontation between partners and a falling out. As is plain for all to see, finding the right partner to embark on a joint venture is paramount to a company's success in China's PRD. The good thing to note is that with joint ventures the pros out weigh the cons if you do happen to find the right person to go into business with!
Are you interested in opening a joint venture in China? Which industry are you in? Are you running one right now? Date Modified: The board of directors shall comprise no less than three members; Directors shall be appointed and removed by EJV parties; Where a Chinese national takes the position of chairman, the position of the deputy chairman shall be held by the foreign party, or vice versa; The tenure of a director shall be four years; The following matters shall be resolved unanimously by the directors who are present at the board meeting — Amendment of the EJV's articles of association; Termination and dissolution of the EJV; Increase or reduction of the EJV's registered capital; Merger or division of the EJV.
Board of supervisors should comprise no less than three members; Limited liability companies with fewer shareholders may appoint one to two supervisors instead of establishing a board of supervisors. The tenure of supervisor is three years; Directors and senior management personnel shall not hold the post of supervisor concurrently. Where Chinese party takes the position of General Manager, the position of the vice-General Manager shall be held by the foreign party, and vice versa.
The IP contributed by the foreign party as its investment in the company must be: Capable of remarkably improving the performance and quality of the existing products and enhancing productivity; Capable of remarkably saving in raw materials, fuel or power. No special limitation, but IP used as capital contribution needs to be evaluated and verified, and shall not be overvalued or undervalued.
The other party of the EJV have pre-emptive right to purchase. Shareholders are free to transfer their equity to other shareholders; A shareholder proposing to transfer its equity interests to a non-shareholder shall obtain the consent of more than half of the other shareholders — The shareholder shall inform the other shareholders of the proposed equity transfer in writing and seek their consent, Failure to reply within 30 days from receipt of the written notice shall be deemed as consent to the proposed transfer, Where more than half of the other shareholders do not consent to the proposed transfer, the non-consenting shareholders shall acquire such equity interests, failing which they shall be deemed to have consented to the proposed transfer, The other shareholders shall have pre-emptive right to acquire such equity interests on similar term.
Where there are any other provisions on equity transfer is regulated in the article of association, such provisions shall prevail. Profit shall be distributed strictly according to registered capital ratio subscribed by each investor. In this post, we are going to assume that your Chinese counterpart is legitimate and truly wants to do a legitimate JV with your company. But just because there is good potential for a profitable China Joint Venture and you are working with a putative China joint venture partner that is sincere and honest does not mean doing the joint venture will make sense.
Before you do a joint venture with anyone you should make sure the two or more of you are truly on the same page regarding what will go into the joint venture and how it will operate once formed. How can you avoid a bad joint venture marriage?
By putting your dreams to the test before you wed. China joint ventures are notorious for their high failure rate. Foreign companies too often rush into China joint ventures without ever discussing their respective dreams with their China joint venture partner.
The sooner you seek to discern whether you and your potential China joint venture partner share the same dreams, the sooner you will know whether it makes sense for you to keep spending time and money trying to do the joint venture deal. To help our clients determine whether they have found their dream JV partner, we have compiled a list of questions they should ask their potential Chinese joint venture partner to determine whether there is sufficient commonality to press forward with their joint venture deal.
If you get answers you like to the above, you keep moving forward. If you get too many answers you do not like to the above, you move on. Just as a quick aside: there is a Foreign investors too often assume Chinese joint venture companies are managed according to the common Western corporate model under which a board of directors has controlling power over the company.
As the majority owner, the foreign investor just assumes it has the right to elect the entire board, and thus effectively control the joint venture company. The Chinese side will intentionally angle to ensure this outcome, often by offering to concede majority ownership to the foreign investor in return for control over these two key management positions in the joint venture company. If you want effective control over a China joint venture, you must avoid this mistake.
The Chinese side to a joint venture will usually refuse to agree to these three measures by claiming it is more efficient to have the Chinese side control day-to-day management of the company.
Once these three control mechanisms are under the control of your Chinese joint venture partner, you will likely quickly learn that you have relinquished power to run the JV and bad things will likely result. What sorts of bad things? The most common is that you will never see any money from the joint venture. This occurs because with its control over your Joint Venture your Chinese counterpart can always make sure the joint venture never makes a profit, but his or her company always does.
Are we losing joint venture legal work because of this reputation or do we get more such work because people believe that if we give their joint venture the go-ahead it really is as good as they think it is. Though we will never know, we can at least try to clear the air. So just to be clear: we like appropriate or necessary China joint ventures but we think it a mistake to consider a joint venture as the default method for entering China.
Of all the China legal work my law firm does, setting up and dismantling joint ventures is probably my favorite. I like it because each joint venture is so different and yet all are intellectually challenging. I also like them because they tend to be one of our most lucrative corporate matters we do. We charge a flat fee for about half our China work, but we always charge hourly for joint ventures because setting up a China joint venture can range from fast and easy to difficult and contentious.
Few joint ventures are fast and easy. A joint venture consists of two independent businesses — one foreign and one Chinese — going into business together.
That alone ought to tell you how difficult they can be. The most difficult questions usually center around control. Which of the two companies will control what?
What really needs to be done to ensure control? What can be done to ensure neither company goes out of control? Just to be clear, we love forming joint ventures, but only when they truly do make sense and well over half the time we end up counseling our clients against doing the joint venture.
Just today I had the following conversation with a potential client modified ever so slightly for dramatic effect :. Me: I am not clear from your email about what exactly you want to do with your Chinese manufacturer but it sounds like you want to enter into a joint venture with them and that will almost certainly be a bad idea. Potential Client: Well, we do want to further solidify our relationship with them and we have been thinking a joint venture might be one way to do that.
Why do you think that is a bad idea? Me: [ Jokingly] Did I say I thought it a bad idea? I hope I am doing a good job pitching this to you. Do you want to move forward? Our China lawyers also love taking apart China joint ventures that have gone wrong, and again, not because it is in any way a good thing for our clients who usually are in dire straits when they come to us with their joint venture problems but because resolving joint venture disputes is like a championship chess game, but at our hourly rate.
The problem with China joint ventures is not China-specific; it is joint venture specific.
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