Because of this blog, our China lawyers get a fairly steady stream of China law questions from readers, mostly via emails but occasionally via blog comments as well. If we were to conduct research on all the questions we get asked and then comprehensively answer them, we would become overwhelmed. So what we usually do is provide a super fast general answer and, when it is easy to do so, a link or two to a blog post that may provide some additional guidance. We figure we might as well post some of these on here as well. On Fridays, like today.
Companies frequently reach out to our Chinese lawyers regarding their desire to do a China joint venture and we often find ourselves suggesting they first do more to make sure there is a sufficient meeting of the minds with the Chinese company before paying lawyers to start drafting the necessary joint venture documents. Our clients then usually ask what they need to know to gain greater certainty. We also get similar questions based on our blog posts.
There is a Chinese saying that is often applied to joint ventures is “same bed, different dreams.” This Chinese saying (同床异梦) actually far predates joint ventures — it applies to any sort of partnership without a meeting of the minds. But it most certainly makes sense for joint ventures as we far too often see Western companies and Chinese companies rush into joint ventures without ever discussing their respective dreams.
Many years ago, a client about to fly to China to meet with a potential Chinese joint venture partner asked for our help in formulating questions to ask of the Chinese company to help determine whether to enter into the joint venture deal. We provided a list of issues to raise at that meeting, and have provided a similar list (honed a bit more each time) to subsequent clients facing the same situation. The goal of raising these issues is to determine whether the two companies share the same dreams, and whether the Chinese company is JV worthy. This list includes the following questions and it is what I send clients who ask me either what they should be discussing with their putative joint venture partner or even when they ask what makes a joint venture work or fail. The below are questions to which the answers will give you a good idea regarding whether your joint venture will work.
- Why are you seeking to form a joint venture with us and what will be the goals of the joint venture?
- What will you do for, and with, the joint venture?
- What exactly do you plan for your company to be doing to advance the business of the joint venture and what exactly do you expect our company will be doing to advance the business of the joint venture?
- Who will make business decisions for the joint venture, and what will mechanisms will we use for reaching a decision?
- What will each of us be contributing to the joint venture? For instance: property, technology, intellectual property, money, know-how, and employees. If the joint venture loses money, who will be responsible for putting more money in?
- How will we resolve disputes? China lawyers like to include provisions saying that we will work out any issues among ourselves and if that fails, we will arbitrate. The tougher question is: how will we deal with day to day disputes in a way so that the joint venture does not collapse?
- Can either of us use confidential JV information for our own business? Can our own businesses compete with the JV? Can our own businesses do business with the JV?
- How and when will the joint venture end? What if one of us wants to buy the other out?
Posing these questions puts China joint venture dreams to the test.