Company investments & joint ventures – China
Charltons provides high impact advice on the negotiation, establishment and on-going operation of equity and contractual joint ventures in China, wholly foreign-owned enterprises, and trading companies in China.
We have almost two decades of experience in China and have offices in Shanghai and Beijing, as well as long established relationships with top Chinese law firms in all of the major Chinese cities. Our deep local knowledge and international perspective gives us a unique insight into Chinese business practices and issues arising from foreign investments and joint ventures in China.
We provide smart and practical advice on key issues to be considered when structuring investments, strategic alliances and joint ventures in China, including offshore structuring, exit strategies and profit repatriation, and strategies to safeguard know-how and intellectual property. We help foreign investors avoid some of the common mistakes when entering into joint ventures in China, assisting in carrying out proper due diligence on potential joint venture partners, and developing mechanisms for controlling and monitoring the activities of the joint ventures in China.
We provide an insightful and highly personalised service to clients, guiding them through the complex PRC regulatory requirements, foreign investment restrictions and governmental approvals involved in establishing joint ventures and foreign invested entities in China, including filings with the Ministry of Commerce (MOFCOM) and the State Administration for Industry and Commerce (AIC). We can advise on the foreign investment restrictions in a particular industry or sector, and have particular experience in obtaining approvals from regulatory authorities in highly regulated industries. We also assist in merger control and competition related matters in China, including notifications to the Anti-Monopoly Bureau of MOFCOM under China’s Anti-Monopoly Law.
Joint venture business scope and commercial objectives
A joint venture agreement (JVA) will usually set out the scope of the joint venture’s business and its commercial objectives (which may include details of any proposed projects or milestones).
The definition and scope of the joint venture company’s business will be particularly important if the joint venture agreement is to contain restrictive covenants preventing the shareholders from competing with the joint venture’s business. The shareholders may want to spend time clearly delineating the scope of the joint venture’s proposed business (including its geographic location) to ensure that the shareholders’ other business activities do not fall foul of any restrictions included in the joint venture agreement.
If the parties to the joint venture aim to realise their investment by means of a trade sale or listing of the joint venture company within a certain period of time, the joint venture agreement could also include a provision that the parties will use their reasonable endeavours to achieve this end.
In the case of a listing in Hong Kong, this could also include provisions requiring shareholders to provide all information necessary to facilitate the listing (including verification of such information) and to provide information requested by the Stock Exchange of Hong Kong Limited (the SEHK), the Hong Kong Securities and Futures Commission or other governmental bodies responsible for reviewing a listing application. Shareholders may also pre-emptively agree to a lock-up of their shares for a specified period post-listing to comply with the Listing Rules or the recommendation of the listing underwriters. However, it is uncommon for a Hong Kong incorporated company to be listed on the SEHK, as offshore companies (e.g. Cayman Islands or Bermudian companies) have traditionally been preferred as listing vehicles. This means that at some stage the joint venture parties may need to effect a restructuring to establish an offshore company as the ultimate holding company of the group to be listed.
If the joint venture is intended to establish an ongoing business, the joint venture agreement may contain restrictive covenants which limit the extent to which the shareholders are permitted to compete with the business of the joint venture company and/or to solicit the joint venture company’s customers, employees or suppliers.
The parties will need to consider matters such as:
- the exact scope (including geographic location) of the business which is the subject of the non-compete obligations
- whether the non-compete obligations will bind members of the shareholders’ groups as well as the shareholders themselves
- whether any carve-outs from the non-compete obligations are required to allow for the shareholders’ (or their groups’) existing business activities (or eg de minimis investments in listed securities), and
- remedies for breach of the non-compete obligations, which could include the forced sale of a shareholder’s competing business or of its shares in the joint venture company
The competition law implications of any restrictive covenants included in the joint venture agreement should be considered and care should be taken to ensure that such restrictions are reasonable and likely to be enforceable.