SUPPLIER DUE DILIGENCE

Due diligence is an investigation, review or audit of a company to confirm and verify certain information about the company before executing a business transaction with it. For international companies sourcing products from China, conducting at least basic due diligence on suppliers is critical to reveal any risks and liabilities, and to minimize the likelihood of being scammed. Due diligence can also provide a company with increased leverage in their negotiations with the company with which they are seeking to do business.

There are endless stories about fake companies (i.e., unregistered companies) presenting themselves as legitimate factories who disappear once payment for the requested goods are made. Furthermore, it is not uncommon for legitimately registered companies to use a fake company name if they have a poor reputation or have been involved in legal disputes, or provide you with a false date of company establishment to conceal that the company was only recently established. Companies may also say that their registered capital is higher than is the case to demonstrate that their financial status is stronger than it actually is, or say they are permitted to engage in business related to the manufacture of the products you are seeking when in fact “manufacturing” is not a part of their business scope.  

Due diligence is broad and can cover a lot of areas, such as legal (e.g., company registration information, legal violations and lawsuits), financial and tax (e.g., accounts and tax liabilities, and hidden debt) and commercial (business operations, sales and distribution network, and suppliers). Our due diligence services have a strong legal focus, although we can also conduct basic financial and tax due diligence from a legal perspective.

Our due diligence services include, but are not limited to, investigating and reporting on the following:

• Company Registration Information. Official company name, registration/operating status, date and place of establishment, contact information, registered address, company type, registered capital, paid-up capital, total investment, license expiry date, business scope, name of legal representative, name, holding and date of latest investment of shareholder(s), name and title of director(s), supervisor(s) and key manager(s), branches, and year of most recent annual return report.

• Change Records. Changes to Articles of Association, change of company name, change of registered address, change in registered capital or paid-up capital, and other changes to company registration information listed above.

• Other Corporate Information. Holding companies, beneficial owner (owns more than 25% of the company), suspected actual controller, company’s investments in other companies, legal representative’s investments and employment status in other companies, legal representative acting as legal representative in other companies, name of auditor(s), and other important information (e.g., in Articles of Association) not listed above.

• Corporate Risks. Serious violations of law, administrative penalties, environmental penalties, tax violations, abnormal operations, land mortgages, chattel mortgages, and liquidation information.

• Disputes/Lawsuits. Name, location and level of arbitration commission or court, filing time, arbitration commission/court summons notice, judgment document, individuals subjected to enforcement measures, seizure and sale of property, frozen equity, and notice of service.

• Intellectual Property. Registered trademarks, patents, copyrights, and domain name(s) of website.

• Financial and Tax. Annual reports (e.g., total assets, gross revenue, net profit), equity pledged, tax credit, and financing amount and rounds of financing from investors.

• Business Operations. Products, recruitment, tenders and bids, government procurement, import and export credit, administrative licensing, spot checks, land purchases and transfers, and bonds.

If you require more complex financial and tax due diligence, we regularly collaborate with specialist tax and accounting firms to provide this service. We can also dig deeper than what is on the public record by working with specialist investigation firms to conduct reference checks and third-party evaluations with a company’s current or former customers, suppliers or even competitors. Additionally, we work with investigation firms that can conduct on-site visits and inspections.