More and more companies are looking into expanding their businesses into the Mainland of the People’s Republic of China (PRC) – and with good reason. With China’s rising standard of living and growing population of the mid-class, it is a huge market for goods and services.
As businesses expand into China, financial transactions and acquisitions will increasingly involve Chinese companies. With respect to due diligence and Chinese company verification, it is important to understand what is realistically available on the public record in China.
Can I Get a Certificate of Good Standing in China?
There is no exact equivalent in China to a U.S. Certificate of Good Standing, a certificate issued by the Secretary of State or similar state filing office that attests to the company’s registration and continued existence. But, to check a Chinese company registration, it is possible to obtain ‘Registration Data’ from either the online database of National Enterprise Credit Information Publicity System (NECIPS) or a local State Administration of Industry and Commerce (SAIC).
Registration data in NECIPS are normally searchable online. The data usually include the following basic information and documents to register a company in China:
- Entity name, type, status, address and business scope.
- Registration number and date of establishment.
- Legal representatives and shareholder(s).
- Registered capital.
- Annual returns (depending on company/region).
- History of any abnormal company status (e.g. being subject to administrative punishment or having a serious credibility issue).
The physical SAIC record is accessible only by a practicing Chinese attorney but may contain more information than the data available in NECIPS.
In either case, you will need to know both the full registered Chinese name of the company and the exact location of its registration.
Can I Conduct UCC Searches in China?
No, as China does not have a system similar to that created under Article 9 of the Uniform Commercial Code in the United States. Although various registrations can be made depending on the type of property involved, many are not publicly available (e.g. land).
There are pledge agreements in China though, made between contracting parties to secure an interest in a claim or receivable. Pledges on shares and mortgages may be registered under the NECIPS system. Please note that pledges may also be shown in the Credit Reference Center of the PRC but that is not a failsafe search, as not all pledges may be known or reported to them.
Limitations of Chinese Public Records
While there are some equivalents to U.S. public records, attorneys in China have advised us it is near impossible to obtain a clear picture of a company’s indebtedness by solely looking at the Chinese public record, due to the large number of agencies that must be searched and the fact that much of the information is not open to public. A common alternative for getting a preliminary picture of a company’s financial health is to obtain a credit report from a trusted partner with native capability and local experience.
As the Chinese and American economies become more intertwined, transactions involving Chinese assets or companies will likely become more commonplace. Understanding the limitations of what can be found on the public record in China will be an important prerequisite in handling due diligence for transactions and acquisitions involving Chinese companies.
When your transaction involves international due diligence, our global network is here to help.
This content is provided for informational purposes only and should not be considered, or relied upon, as legal advice.
