Sunday, June 28, 2009

Learning Experience China 3 - 3

Day 3

For a buyer acquiring a company in a foreign country, the two professional they need to contact is a good lawyer and a good accountant. These two professional plays a major part of the acquisition process.

A piece of advice, if you ever want to get a professional service provider on compliance work in China ALWAYS get a local professional. This is especially so in China.

I have come to the conclusion that many foreign companies acquiring a local company uses lawyers and accountant from their own country to provide the service.

In my personal view, is that these foreign professional will still go to the local to get help, so why are you paying twice.... might as well come direct. In China especially, in the early days all accountants and lawyers works for the State and there was not many in private practice.

As such most of these lawyers have very good contacts and network. China being such a big country and if the acquisition involves a small province, the small province lawyer is required.
They have the connections and the local knowledge to help you.

Now for consultancy work, not involving compliance regulatory requirements then it is different; you need someone you can trust to manage the local.

An example is to do with the Singapore authorized capital and paid up capital and China’s total investment and paid up capital. The difference is that in Singapore, the company can register a $2 paid up and $100,000 authorized where in China the rules are different. The total investment has to reflect the business transaction of the business and the working of the paid up based on 70% of the total investment. A careless mistake by a Singapore accountant causes his client’s application for conversion to be rejected.

Let’s talk about professional fee. Over the years I have come to gauge the different type of professional services and the charge out rate or fee. Interestingly the consultancy fee in China has escalated over the last twenty years since I started working in the China market. A legal fee for a local lawyer in the 80’s on a per hour basis was 200RMB and today the same lawyer friend is charging me 900RMB per hour, what a jump. A simple due diligence (let me qualified that it is a simple Due D), the fee including miscellaneous is budget about US$30 – 50K.

Back to the case. The client after meeting with several lawyers and accountants is deciding on the next steps. What criteria do the client need to observe?

To be continued….