Is that you are also setting up a contract with another firm? And you are doubtful? Then due diligence services are for you to avail. Here is an article on Due Diligence Services In China.
Due diligency services save from irreparable damages. It is the investigation or auditing of the opponents before contract signing. In China, it helps you from fraud and froggery and saves your business from losses.It consist of registration,accounting,finance,tax and operational examination.
What Is Due Diligence?
Due diligence is an investigation, audit, or inspection conducted to verify evidence or details of a matter under consideration. For example, due diligence requires an examination of financial records before entering into a proposed transaction with another party. In addition, it refers to verification of the opponent company’s potential, investment, product, or staff.
What’s The Need For Due Diligence Services In China?
In China, you have limited access to public information and which, sadly, most of the time, is incomplete. And that creates a problem for investors and businesses. Moreover, sometimes chinas constantly changing rules and unclear regulations make investors a little jittery. So if you are a foreign firm, not a native, it’s better to hire a corporate firm for their due diligence services. It’s better to stop second-guessing and know your opponent before getting trap into some terrible risks.
How To Conduct Due Diligence?
Due diligence is multidisciplinary.In this article, we focus on the due diligence that is WFOE (Wholly Foreign-Owned Enterprise) before cooperating with a Chinese partner. Some of the things you should consider are the following:
Registration Examination
We all know registering your company in china is the first step of many to opening up a business. So same goes for due diligence. First, we inquire about the registration of the company under question. That means we will look after whether the company gets registered with the state administration for market regulation or local SAMR. It would be best to look after the registered capital, the registered legal person, the scope of activity, registered address, and the business license validity.
Financial Examination
financial examination demands looking after the finances of the opponents. It would help if you looked into their equity structure, shares percentage, main shareholders, capital availability ratios, types of investment, bank statements, loans. And do look into credit government, subsidiaries and debts before signing off any deal with them.
Accountancy Examination
Accountancy examinations are also a very crucial part of due diligence. In accountancy examination, you are supposed to check the party’s accounts. Going back at least three to five years is often recommended before closing a deal in these receivables. In addition, fixed assets, payables and liabilities should be check-in accordance with Chinese accounting standards. The accounting examination should be monitor under Chinese Accounting Standards (e.g. accounting on an accrual basis), income and costs, supporting documents for authorized payments, and the authenticity of invoices
Tax Examination
Before getting into business with them, make sure you check their preferential tax rates, yielding with foreign exchange regulations, and their agreement with tax regulations authorities. All these tax-related inquires should be looked after first so that your business doesn’t face a pitfall shortly.
Operational Examination
What’s best than getting on-field experience? Once you have sorted out all the major details, now it’s time to pay a visit physically. Visiting them will help you learn about their work ethic and their values. Look after their stock area, production department. It’s always a good idea to talk with the employees and get a clear cut on their ambitions and aspirations.
