Each time, when my clients complain to me about their disputes with Chinese entities, I will ask them: “Could you show me the copy of their business license?” This is because I know that few of them can tell their counterparty’s Chinese name.
Unfortunately, less than half of the clients could 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, website and all our correspondence via email. ”
In my experience, these websites, business cards and the signature line in an email sometimes tell nothing about the true identity of people behind them. However, a business license does the job.
Why is a Business License so important?
A Business License is a certificate of company’s identity issued by the local AIC (Administration of Industry and Commerce，the corporate registration and management authority in China), just like a certificate of incorporation is in some jurisdictions. A Business License provides basic information of an entity，including:
- registration number,
- name and domicile of the entity,
- name of the legal representative (the individual who represents the entity and is authorized to sign contract on behalf of the entity),
- registered capital,
- type of entity (if it’s a limited liability company or any other),
- business scope (type of business allowed to do, such as trading, consultancy, etc.),
- date of incorporation, etc.
So, from a business license, we can tell if this entity is legally incorporated. Through the information in the business license, we can find further information, such as if this company still exists, is the company in any disputes or proceedings, or involved in other abnormal situations. All this can be done by searching in the 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 others identity, and can do some due diligence later.
However, all websites, business cards or emails are not something issued by the government. It could tell totally false information, or even worse, no such entity could exist at all!
Besides, all these information on the website, the business cards or the signature line in the email are in English. In China, all official documents regarding any resident or entity is in Chinese. No matter what the Chinese entity calls themselves in English, it’s not official. You can never locate a Chinese individual or entity by an 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 provides their business license. You may wish to hire an English-speaking local lawyer to do it. It’s a very simple due diligence, but very important.
Useful Link:
State Administration for Market Regulation
