Who Should Sign Your China OEM Agreement?

Who ought to indicator your China OEM Agreement?

This difficulty ordinarily offers alone when a Hong Kong or Taiwan entity would like the OEM arrangement (a/k/a the deal producing arrangement or supplier arrangement) to be with it, and not with the PRC entity that will essentially be manufacturing the solution. Our international producing legal professionals regularly deal with this problem when drafting China OEM agreements, typically in a single of the adhering to 3 cases:

1. The Hong Kong/Taiwan entity is the mother or father organization of a PRC WFOE, and that WFOE owns and operates the factory that manufactures the item.

2. The Hong Kong/Taiwan entity has no ownership stake in the PRC entity that owns the factory. Instead, some or all of the proprietors of Hong Kong/Taiwan entity are also the entrepreneurs of the PRC entity. Or probably the homeowners of the Hong Kong/Taiwan entity and the PRC entity are part of the similar extended family members.

3. Neither the Hong Kong/Taiwan entity nor its house owners have any economical curiosity in the PRC entity. The Hong Kong/Taiwan entity is simply a gross sales agent for the Chinese manufacturing unit.

Although it is pleasant to know the actual partnership involving the Hong Kong or Taiwan entity and the PRC factory, it normally is not essential for analyzing how to produce the OEM contract. We typically desire our clients’ OEM agreements be with the PRC entity and not with the Hong Kong/Taiwan entity for the pursuing good reasons:

• We know the PRC entity has property because we know it owns a factory. Quite often the Hong Kong or the Taiwan corporation has no assets over and above a rented workplace with a couple chairs, desks and pcs. We choose our shopper have deal and litigation leverage above a company with a factory than a business with some chairs. Also, a firm with a manufacturing facility is a lot more likely to abide by a deal than a firm with some chairs.

• Our OEM agreements contain non-disclosure, non-compete and non-circumvention provisions. See China NNN Agreements. The PRC entity, not the Hong Kong/Taiwan entity, is by much the most possible entity to manufacture and provide our clients’ merchandise in competitiveness with our consumer. We for that reason want that company to sign a agreement that prevents it from accomplishing these kinds of a issue.

• If the manufactured merchandise is of weak good quality or shipped late, it is simpler to deal with the entity that truly did the production.

• We want the payments to go to the entity that truly does the production, rather than an interposed Hong Kong or Taiwan entity that gets payment for the producing, and we want the OEM settlement to replicate this. For just one detail, the PRC manufacturing unit could claim it was in no way paid out by the Hong Kong or the Taiwan manufacturing unit, and use that as a purpose not to manufacture for our client. Sure, this difficulty can be dealt with by deal, but executing so complicates things, not least simply because it brings one more jurisdiction into participate in.

What are you looking at out there?