How to Do Business in China: Transactions and Disputes

14 Acquiring or Investing in an Existing Chinese Business

Buying into an existing Chinese company can provide access to customers, licences, staff and local operations, but it also means inheriting the target’s corporate history and potential liabilities. Foreign investors should assess both the investment route and the condition of the business before signing a binding transaction document.

Confirm the proposed ownership is permitted

The target’s actual business activities should be compared with the current foreign-investment negative list and applicable domestic licensing rules. A company’s registered business scope may not reveal every regulated activity it carries out. Some sectors impose foreign ownership limits, qualification requirements or other operating conditions.

Conduct legal, financial and operational due diligence

Review the target’s corporate records, ownership chain, registered capital and contribution status, licences, tax and accounting records, employees, social-insurance contributions, material contracts, loans, guarantees, litigation, enforcement history, intellectual property, real-property rights, data practices, customs history and environmental or product-safety exposure. Pay special attention to undisclosed related-party arrangements and records that do not match actual operations.

Structure the deal and approvals carefully

An acquisition may require company and shareholder approvals, registration changes, foreign-investment information reporting, sector approvals, project filings, merger-control review or national-security review, depending on the transaction. The share-purchase agreement should address conditions precedent, price adjustments, representations, indemnities, escrow or holdback, employee matters, transition arrangements and post-closing access to records.

Asset purchases and equity purchases allocate liabilities differently. The right structure depends on the licences and contracts that must continue, the target’s liabilities, tax consequences and whether permits can be transferred. The deal documents should also specify how foreign-language documents, company chops and signing authority will be handled at closing.

15 Commercial Litigation and Arbitration in China

Foreign companies doing business in China should plan for a dispute before one arises. A well-drafted contract can make a major difference to where a claim is heard, which law applies, how evidence is preserved and whether a resulting judgment or award can be enforced against assets.

Choose a workable dispute-resolution clause

Commercial contracts commonly provide for litigation before a specified competent court or arbitration administered by a named institution. The clause should be clear about the institution or court, seat or place of arbitration, language, governing law and scope of disputes. The choice should reflect the counterparties’ locations, likely asset locations, urgency, confidentiality and enforcement needs. Mandatory jurisdiction rules may limit the parties’ choices in some matters.

China’s revised Arbitration Law took effect on March 1, 2026. Existing clauses should be reviewed where the transaction involves a China-seated arbitration, foreign parties or a cross-border enforcement strategy. A clause copied from an unrelated contract may contain ambiguity about the institution, seat or scope of disputes.

Preserve evidence and manage the claim early

Keep signed contracts and amendments, purchase orders, inspection and delivery records, payment evidence, product samples, messages and meeting notes in a form that can be authenticated and translated if needed. Where goods are defective or damaged, arrange timely inspection, photographs, expert analysis and written notice to the counterparty. Delay can make evidence harder to obtain and can affect contractual deadlines or limitation periods.

Do not confuse an investment complaint with a commercial claim

The foreign-invested-enterprise complaint mechanism can address certain problems involving administrative actions and the investment environment. It is not a substitute for litigation or arbitration over a private commercial dispute with a customer, supplier or business partner.

How we can help: We represent foreign clients in mainland China and Hong Kong litigation and arbitration, assist with evidence and interim measures, and pursue recognition and enforcement of foreign judgments and arbitral awards in China.

16 Recognition and Enforcement of Judgments and Arbitral Awards in China

For cross-border disputes, the value of a judgment or arbitral award depends in part on whether it can be recognized and enforced where the counterparty’s assets are located. Enforcement planning should begin when the contract and dispute-resolution clause are drafted.

Consider interim relief and enforcement at the outset

For a cross-border dispute, identify where the counterparty’s assets are located and whether the chosen forum can support asset preservation or other interim measures. China recognises and enforces foreign arbitral awards under the applicable treaty framework, while foreign court judgments are assessed under applicable treaties or reciprocity and statutory requirements. Mainland China and Hong Kong also have a reciprocal arrangement for recognition and enforcement of civil and commercial judgments, subject to its scope and exceptions.

17 Closing a China Subsidiary: Deregistration and Exit Planning

Closing a China company usually requires more than stopping operations or returning the business licence. The company should plan for dissolution, liquidation, creditor notices, employees, tax, customs and final deregistration. Leaving a dormant entity unattended can create continuing compliance and liability risks.

Decide whether the company qualifies for a simplified route

China provides general and simplified deregistration procedures, but simplified deregistration is available only when the company meets the statutory and local conditions. A business with unresolved debts, unpaid wages, social-insurance contributions, taxes, penalties, abnormal-operation status or other disqualifying circumstances may not qualify.

Complete liquidation and settle obligations

For a general liquidation, the company should adopt the required dissolution decision, form a liquidation group, make the required public disclosures and creditor announcement, identify and realise assets, settle taxes and debts, address employee wages and statutory compensation, and prepare the liquidation report. Branches and relevant registrations may need to be closed as part of the process.

Close the company’s regulatory footprint

The company should coordinate tax clearance and deregistration, market-regulation deregistration, customs deregistration where relevant, bank-account closure, social-insurance and housing-fund closure, foreign-investment cancellation reporting and cancellation of licences, seals and other registrations. The exact sequence and required documents can vary by location and business profile.

Exit planning should begin before the final month of operations. The company should preserve corporate, accounting, employment and transaction records, document shareholder decisions and confirm how remaining funds can lawfully be distributed or remitted after liabilities are settled.

How we can help: We advise on voluntary dissolution, liquidation planning, creditor and employee issues, deregistration filings, tax and customs coordination and cross-border distribution of lawful liquidation proceeds.