Navigating the business world in any new market can be challenging, but partnering with a local can simplify the process. A competent local partner can alleviate many of the issues associated with the business environment, providing insights into local laws, culture, client relations, government interactions, and business protocols. While business may be your primary focus, securing a trustworthy partner is crucial.
I recently encountered a case involving an international investor and their local partner, whom we'll refer to as Peter and David, respectively. Peter hailed from the same country as David and had a Chinese spouse, having resided in China for over five years. David aimed to open a restaurant and was informed by Peter that "only Chinese citizens are allowed to rent spaces designated for restaurants." Peter convinced David to entrust the investment funds to them, with P's spouse managing the establishment of the restaurant.
This story raised red flags for me. Peter deliberately misled David. In reality, any foreigner in China can establish a limited liability company and can take on any role within their own business.
Although some foreigners opt for a local partner, one advantage is the reduced required registered capital. In Peter and David's situation, Peter should have presented various options to David. However, a mistake was made. P acknowledged that the investment was made by Daivd, but David did not manage the business; Peter controlled every aspect, leading the enterprise to bankruptcy. David invested and lost over 1 million RMB.
My client's experience is not unique. In my view, while collaboration with a local partner is possible, it's essential to consult with a local legal expert before entering any agreement. Ensure you comprehend the terms and conditions. During the contract drafting process, I recommend engaging an independent accountant to ensure that all invested funds are properly accounted for.