Who Should Sign Your China OEM Agreement?

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Who must signal your China OEM Settlement?

This difficulty normally presents itself when a Hong Kong or Taiwan entity would like the OEM arrangement (a/k/a the agreement manufacturing arrangement or provider arrangement) to be with it, and not with the PRC entity that will basically be production the item. Our global manufacturing attorneys continually deal with this problem when drafting China OEM agreements, normally in a person of the following three predicaments:

1. The Hong Kong/Taiwan entity is the father or mother business of a PRC WFOE, and that WFOE owns and operates the manufacturing facility that manufactures the products.

2. The Hong Kong/Taiwan entity has no ownership stake in the PRC entity that owns the manufacturing facility. Alternatively, some or all of the house owners of Hong Kong/Taiwan entity are also the proprietors of the PRC entity. Or probably the proprietors of the Hong Kong/Taiwan entity and the PRC entity are element of the exact extended relatives.

3. Neither the Hong Kong/Taiwan entity nor its owners have any financial fascination in the PRC entity. The Hong Kong/Taiwan entity is basically a sales agent for the Chinese factory.

While it is wonderful to know the true partnership amongst the Hong Kong or Taiwan entity and the PRC manufacturing unit, it typically is not critical for identifying how to compose the OEM contract. We generally want our clients’ OEM agreements be with the PRC entity and not with the Hong Kong/Taiwan entity for the next motives:

  • We know the PRC entity has belongings for the reason that we know it owns a manufacturing facility. Oftentimes the Hong Kong or the Taiwan firm has no assets beyond a rented business with a couple chairs, desks and personal computers. We prefer our customer have contract and litigation leverage more than a firm with a manufacturing unit than a organization with some chairs. Also, a corporation with a factory is more probable to abide by a contract than a enterprise with some chairs.
  • Our OEM agreements include non-disclosure, non-contend and non-circumvention provisions. See China NNN Agreements. The PRC entity, not the Hong Kong/Taiwan entity, is by far the most very likely entity to manufacture and offer our clients’ goods in levels of competition with our client. We as a result want that maker to signal a deal that prevents it from executing these a point.
  • If the manufactured product or service is of weak excellent or shipped late, it is much easier to deal with the entity that actually did the producing.
  • We want the payments to go to the entity that actually does the producing, fairly than an interposed Hong Kong or Taiwan entity that receives payment for the producing, and we want the OEM agreement to reflect this. For a person point, the PRC manufacturing facility could claim it was never paid out by the Hong Kong or the Taiwan factory, and use that as a rationale not to manufacture for our consumer. Certainly, this issue can be dealt with by contract, but undertaking so complicates matters, not minimum because it brings yet another jurisdiction into play.

What are you observing out there?

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