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August 1, 2015

Frequently Made Mistakes in Governing a Joint Venture

From the numerous JV shareholder and board meetings that I’ve attended, I’ve noticed some frequently made mistakes in the foreign shareholders’ approach to gaining or maintaining control of their JV business in China. They include, but are not limited to:

[pullquote align=”right” size=”32″]Lawyers are responsible for whomever pays them.[/pullquote]
  • Inadequate due diligence, or no due diligence exercised at all, before entering into a JV shareholders agreement.
  • Failing to realize that there exist two opposing goals among Sino-foreign shareholders, which often results in unconstructive, time-wasting discussions and meetings.
  • Being close-minded to alternate solutions in resolving petty disagreements, often escalating them to near unresolvable disputes.
  • Failing to recognize local culture and Chinese business realities, such as by abruptly forcing a foreign management style onto the JV’s daily operations.
  • Failing to recognize jurisdiction differences, such as by making a JV board resolution that turns out to be unenforceable.
  • Lack of devoted and competent personnel with authorization to sign papers on behalf of the foreign shareholder.
  • Failing to supervise the authorized personnel’s work and lighting a fire in their own backyard.
  • Sending a representative who is competent as a production manager but not as a general manager. This is common in factory businesses.
  • Letting the other party’s lawyer do all the talking and believing that his/her advice and suggestions are for the good of the JV.
  • Forgetting that lawyers are responsible for whomever pays them.
  • Not establishing a decision-making mechanism for the JV’s financial issues going forward.
  • Not establishing an IP protection strategy for use when authorizing the JV or the Chinese shareholder to use the foreign shareholder’s know-how, trademarks and other IPs.
  • Failing to recognize the necessity of engaging local professionals’ help, such as legal assistance, accounting and auditing services, for local compliance.
  • Failing to sign a non-competition agreement with the Chinese shareholder.
  • Not having an exit plan.

We are experienced in identifying the above and more delicate hidden issues in running and managing a JV, as well as offering practical solutions and assistance in taking measures to keep things under control. To schedule a consultation on JV management in China, contact us at inquiry@evaslaw.com.

August 1, 2015