GlobalAutoTV
Click to watch David S. Eberly -
Click to watch David S. Eberly -
china resources


Need an office in China? Office suites, meeting rooms, virtual offices, network access



free downloads
CHINA: "China Options for Michigan Automotive Related Businesses" article

CHINA: "China Options for Michigan Automotive Related Businesses" article. 5-page article by Paulsen Law Firm PLLC.

proceed to download
eJournals



back to index backCHINAtalk January,  2017


Corporate Deadlock In China: When Business Runs Aground

As with any relationship, corporate relationships are subject to disagreements and the opportunity for parties to the agreements to become non-cooperative. It is important to understand the deadlock issues within ‘Wholly Foreign-Owned Enterprise’ (WFOE) and ‘Joint Ventures’ (which include equity joint ventures (EJV) and cooperative joint ventures (CJV)); what a deadlock is; what causes the deadlock; and how investors can structure their agreements to avoid and solve deadlocks.

It is easy to see why foreign companies would want to enter a cooperative relationship with local Chinese companies. The advantages range from gaining political connections to taking advantage of domestic knowledge, pre-built infrastructures and market share. Yet, managing a JV located in China is a path fraught with many challenges. One such challenge is the deadlock, which essentially prevents the company from moving forward. A conflict between partners is anathema to a profitable business.

First, it is worth noting the differences between the three business structures identified. A WFOE is a legal entity, which is 100% owned by one or more individual or corporate foreign investors. A JV is a legal entity that by foreign and domestic investors invest in. The parties agree to create an entity by both contributing equity, and they then share in the revenues, expenses, and control of the enterprise.”

What Is Deadlock?

A company can be thought of as possessing its own will that is subject to the will of the shareholders (or the directors in a JV): an observed ‘dual-layer will.’ Any dysfunction of will at either level will create a deadlock. A deadlock is a cessation of corporate operational effectiveness or the loss of capacity to act, frustrating the purpose of the shareholders. In other words, a disagreement or lack of communication between company organs that are in charge of its functions prevents the company from continuing its business effectively.

Simply put, company deadlock is where one entity decides to act opportunistically, resulting in the other partner(s) or shareholders retaliating defensively by refusing to cooperate. Since, per Chinese law, the board of shareholders is the highest authoritative organ in a company for WFOEs and the board of directors for the JV, deadlock is often more common where the equity ratio or investment proportion between parties is too centralised – such as 50:50, 45:45:10 or 65:35 – particularly when the law requires a two-thirds majority or a unanimous vote. Furthermore, deadlocks present a unique problem where there are two larger parties with a minority shareholder (45:45:10, for example) and each majority shareholder hopes to rally the minority. This can lead to a minority controlling the board.

To read entire article, please click here.

Source: The Market Mogul
- GAI






previous page

go top
search our site


Loading

CHINAtalk

Other articles from the same issue (January,  2017).

China automotive market: witnessing the transformation (2017 edition)
play read on

Global Automotive Executive Survey 2017
play read on

Connectivity, digitalisation and data analytics are key priorities for Chinese automakers, finds KPMG survey
play read on

China: Top 10 game-changing auto industry events in 2016
play read on

China sales vroom in 2016 for global automakers; dull 2017 looms
play read on

Lower-tier cities set to fuel auto market growth for decade
play read on

China to build world's largest autonomous driving testing zone
play read on

Foreign automakers set to roll out more SUV models in China
play read on

Is the world’s factory ‘hollowing out’ as manufacturers pack up and leave China?
play read on

American businesses say working with China is getting harder, despite government rhetoric about free trade
play read on

Silk Road route back in business as China train rolls into London
play read on

China Business Climate Survey Report 2017
play read on

90 seconds to understand how to deal with the China transfer pricing compliance requirement
play read on

Tariffs on China will mean tariffs on US imports, says Beijing
play read on

IP rights push in China benefits business
play read on

Super Common China Contract Mistakes
play read on

Corporate Deadlock In China: When Business Runs Aground
play read on

Are China's taxes killing its competitiveness?
play read on

What To Expect From China’s Anti-Monopoly Law This Year
play read on

China needs manufacturing upgrade amid challenges from India: Chinese media
play read on

China tells top officials to lead corruption fight by example
play read on

Narrowing talent recruitment gap between local and foreign companies in China: Report
play read on

Going global: Trends and implications in the internationalisation of China’s currency – 2017
play read on

No vacation for nearly 40% of China’s white collar workers
play read on

Shifting patterns: The future of the logistics industry
play read on

Chinese growth slips to slowest pace for 26 years
play read on

Three ways executives in China will adapt to new market realities
play read on

Greater China leads world’s IPO market in 2016 despite global uncertainty
play read on

Doing business in China - about relationships and subtleties
play read on

China bids to attract more investment
play read on

Shanghai’s new mayor leads off with free-trade zone commitment
play read on


Our Free eJournals
GlobalAutoExperts

To visit GlobalAutoExperts Directory, click here.


©2008 GlobalAutoIndustry.com | HCI Group, Ltd.
101 West Big Beaver Road, Suite 1400 | Troy, MI 48084 USA
USA Tel: +1.248.687.1060 | USA Fax: +1.248.927.0347
Fax UK: +44.(0)845.127.4765 | Fax Europe: +31.20.524.1659 | Fax Asia: +852.3015.8120