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How to prevent risks when signing a contract with a Chinese supplier for the first time?
A basic background check shall be carried out.
Require supplier to provide Company Articles of Association, Business License and other information. Company Articles of Association records the identity information of shareholders, registered capital subscription and other information. Some company’s shareholders are the parents of the actual controller, they are all over 60 years old or more. Though the registered capital is very big, some of which are 10 million or more, due to 2018 China Company Law allows shareholders to inject registered capital no time limits, it can be 30 years or more, then the actual paid-in capital of this kind of company is very small, and essentially it is a shell company with no assets. Trade with this kind of company is super risky.
Drafting, reviewing, and signing contract shall ensure the contract will be smoothly performed and make transaction is safe.
For example, make sure the person signing the contract is the legal representative or authorized person of the supplier; make sure the supplier has corresponding qualification licenses, such as "Food Business License", "Liquor Wholesale License" and other corresponding licenses; payment process and delivery goods process respectively matching; the inspection, return and claim of goods clause; termination and notice clause; liability for breach of contract clause; court jurisdiction of disputes clause and etc.