As Chinese companies restructure and competition intensifies, more and more firms are looking at buying and selling private companies in China as a means of financing their business development. Also in recent years, another trend has been developing, namely foreign investment in Chinese business.
This blog post summarizes the main nuances of conducting M&A transactions in the People's Republic of China.
Forms of M&A deals in the PRC
Share purchase in a Chinese company or its assets are most frequently used, while mergers between two companies are also legally recognized, but in practice they are not spread due to the complexity of the procedure.
Company acquisition in the PRC within monetary thresholds set by the state may be subject to verification to comply with local antitrust laws.
Share purchase in a Chinese company, as well as the purchase of assets in China, are within the Chinese legal framework if the target company or its owner has local registration.
You can get acquainted in detail with all the nuances of the deals during legal advice on the application of corporate law in M&A transactions in China.
Deals with foreign investment
Overseas investors intending to acquire a business in the PRC are well aware that starting from this year, the Law on Foreign Investments has been in effect. It is designed to make working conditions more transparent for foreign companies and help them compete with local state-owned companies. If earlier the Chinese authorities had to indicate in each specific case which industries are open for foreign investment, now, on the contrary, a list of closed industries has been created.
This means that all other industries are automatically considered open to foreigners. Nevertheless, overseas business still has questions and doubts in the effectiveness of the new law since it was adopted without active consultation with the business community. The main concerns are about protecting intellectual property, cutting subsidies to Chinese companies and making sure China will deliver on its promises. However, the new rules could help the country attract $ 1.5 trillion in foreign investment over the next 10 years, experts predict.
For more information on the structuring and the process of buying and selling companies by foreigners, you can find out in the process of expert advice on the regulation of M&A transactions in China with the solicitors of our company.
The transfer of share ownership to a Chinese company differs much if the deal involves foreign investment, state-owned enterprises, or a range of specific industries like medicine, agriculture, car manufacturing etc. In the above cases the deal will be subject to special approvals and take longer than a typical internal deal. The transfer of equity, business or assets of state-owned enterprises is also subject to mandatory valuation. In this case, the sale must be carried out publicly through qualified exchanges.
Company's shares ownership transfer in China
The legal right to own shares in a company in the PRC is prescribed by law and cannot be negotiated, although shareholders may sometimes enter into agreements to exercise certain shareholder rights.
Company capital can be transferred automatically in accordance with the law. For example, the legal successor can inherit the rights of a shareholder. In addition, courts are legally enforceable to transfer certain shares of a company.
Our company experts provide legal assistance at all stages of an M&A deal in China. Due Diligence of corporate documentation in M&A transactions in China you can also entrust our seasoned professionals.
Our experts provide legal assistance in transactions with equity participation in the PRC. The list of services of our company also includes consulting on minimizing corporate risks when attracting investments.
In recent years, M&A activity in China has increased. There are many factors that contribute to this. One of the main factors is foreign investment in the Chinese industry, in accordance with which such important industries as telecommunications, information technology, financial services are developing, which opens up more opportunities for mergers and acquisitions. In theory, the new law makes enterprises with foreign capital more competitive, leveling them in rights with local ones.
The IQ Decision UK team is ready to advise on M&A deals in the PRC. Also, our specialists conduct legal due diligence of M&A transactions in China.