Every time, when my clients complain with me about their disputes with the Chinese entities, I will ask them: “Could you show me the copy of their business license in China?” Becausthe e I know that few of them can tell their counter party’s Chinese name.
Unfortunately, less than half clients provide a valid business license. Instead, they would ask: “what do you mean by business license? why do I need it? ” Or “ Sorry, I have no such things. But I have their business cards, the website and all our correspondence via email. ”
In my experience, these website, business cards and the signature line in a mail sometimes tell nothing about the true identity of people behind them. However, a business license could do the job. Why is a business license in China so important?
Business license is a certificate of company’s identity issued by local AIC (Administration of Industrial and Commerce，the corporate registration and management authority in China), just like a certificate of incorporation in some jurisdictions.
Business License in China provides basic information of an entity，including: registration number, name and domicile of the entity, name of the legal representative (the individual who represent the entity and is authorised to sign contract on behalf of the entity), registered capital, type of the entity (if it’s limited liability company or any others), business scope (type of business allowed to do, such as trading, consultancy, etc.), date of incorporation, etc.
So from a business license in China, we can tell for sure, if this entity is legally incorporated. And actually, through the information in the business license, we can find further information, such as if this company still exist, is the company in any dispute or proceedings, or involved in other abnormal situations？All these could be done by searching in government database (which is free of charge) or in some paid database.
In China, when people are discussing a deal, both parties will exchange their business licenses, or at least show each other a duplicate copy of the business license. So they will know each other’s identity, and do some due diligence later.
However, all webs, business cards is not papers issued by government. It could tell a totally false information, or even worse, there is no such entity at all!
Besides, all these information in the web, the business cards or the signature line in the email are in English. However in China, all official documents regarding any resident or entity is in Chinese. No matter what the Chinese entity called themselves in English, it’s not official. You can never ever locate a Chinese individual or an entity by a English name. So, in any case, you should insist on a copy of their business license.
If the Chinese entity cannot present a business license, then you are probably dealing with a fraud. If the information the Chinese entity provides you does not match up with whatever is stated in the business license, then you are probably dealing with a fraud too.
Of course, it’s not easy for a foreigner to do the check, even if the Chinese entity provide the business license. Then hire an English-speaking local lawyer to do it, it’s a very simple due diligence, simple, but very important.
Originally posted on https://chinalawhelp.com/china-business-license-importance/
Written by
Sophie Mao
Directing partner at Chibridge Law Firm based in Guangzhou, China. Her main business is to advice overseas SMEs on doing business in China and also counsel expats working and living in China. You can reach her at phone: +8613798001999, or email:
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