In order to gain approval of the acquisition, important issues to bear in mind are: 1. If it is an acquisition that is in the shape of a JV, the foreign ownership must be at least 25%. 2. Debt/equity ratios should be complied with. 3. If the acquisition creates a WFOE, the business scope may not be in area prohibited to foreign undertakings. 4. If PRC law demands that a majority stake is reserved for the Chinese party, a foreign party may not gain control. 5. The MOFTEC Foreign Investment Guidelines must be complied with, as well as the Several Provisions on Changes in Equity Interests of Investors in Foreign Invested Enterprises.
Furthermore, legal due diligence is highly advisable. First, the investigation should include background and history of the project and a preliminary project approval. Second, the joint venture contract and/or articles of association are important documents to consider since they contain regulations concerning the rights of the parties as well as rules concerning mutual rights and obligations of the parties to the FIE. The investor should also ensure that the FIE has been duly approved. Other important to consider are a) the formulation of the business license, b) the need for any special permits or licenses, c) the capital verification report and investment certificates in order to see the amounts of capital injection of the parties, d) if any conditions are imposed on the parties equity interests, d) land use documentation, e) construction permits, f) technology and intellectual property rights, g) environmental requirements and assessments.
