Beware Registered Office Addresses when Tendering in China
Aug. 9 – Many internationally minded businesses in Europe, North America or elsewhere use registered office addresses as their principal point of contact. However, when tendering for contracts, especially in communist or ex-communist countries, using such addresses as the contact point for tenders can lead to disqualification from the bid process.
Registered office addresses are commonly used when either having originally purchased a shelf company, either in the UK (offshore jurisdictions such as Jersey or even normal UK locations), the United States (Delaware is an example), or other popular tax related jurisdictions such as Hong Kong, Singapore or even the BVIs or other offshore locations. In the West, it is considered normal to possess a registered office address, either as a mail box for shelf companies, or as an administration center, while maintaining the actual place of business operations in a secondary location.
However, in China, and other similar communist based administration led countries, such devolution of the business operations away from the registered address is illegal. This can have repercussions that foreign businesses tendering in China should be aware of, and especially when involved with contracts involving the state.
As an example, a client of ours recently tendered for an open bid contract in Turkmenistan. The Turkmen government disqualified the bid when, having asked their embassy to check the company out, they physically visited the registered address only to find just a small office and no production facilities. The client had not been informed such a visit would take place, and naturally the report back was negative. The lesson here is that despite the client having a bone fide production facility in a secondary location, the damage done by identifying the registered address as part of the tender process was enough to have them rejected as a bidder.
As countries such as China begin to invest larger amounts of money in the West, and begin to award tenders to businesses without a presence in their own nation, Western companies must understand the legal administration differences in corporate registrations that exist between the West and the East, and the initial due diligence problems that can crop up when it comes to differing legal administrative jurisdictions. The use of the exact place of business when tendering for contracts, or at the very least ensuring the contractor is aware of the different locations, may be the simple dividing line that denotes bid success or failure. It should also be noted that in such competitive environments, competing businesses may also highlight such discrepancies to their advantage. Businesses with registered addresses should take note of this issue when preparing tenders, lest physical examinations reveal a basic admin or shelf company rather than the full production facility intended.
Chris Devonshire-Ellis is the principal of Dezan Shira & Associates. The firm has 19 years of China expertise and has 12 offices throughout the country, assisting international clients establish business with or in the PRC. For confidential, professional advice over contracts, legal or tax issues concerning China, please email the firm at email@example.com or visit www.dezshira.com.
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