Designated investments agreement is an important tool for foreign investors to invest in certain industries in China. It defines the key terms between foreign investors and Chinese companies when making investments in restricted industries. With China further opening up its market, more foreign investors are interested in entering Chinese market through designated investments. By signing designated investments agreement, foreign investors can better understand investment procedures, required government approvals, profit distribution, dispute resolution mechanisms etc. When drafting designated investments agreement, key issues like investment scale, payment schedule, board seats, technology licensing, profit distribution etc. need to be clarified. Investors should also pay attention to dispute resolution clauses and change of law clauses. There are some sample designated investment agreements investors can refer to when negotiating with Chinese partners.
Designated investments agreement provides key protections to foreign investors in restricted industries
China employs a negative list approach in administering foreign investments, with certain industries being restricted or prohibited for foreign investors. For foreign investors who want to invest in restricted industries, signing a designated investment agreement with Chinese partners is essential. The agreement lays out the key terms of the investment relationship, providing important protections to foreign investors. Key issues covered include investment amount, payment schedule, profit distribution, board seats distribution, technology licensing, dispute resolution etc. With these terms clarified upfront in a binding agreement, foreign investors can have more clarity on the investment relationship. The agreement also serves as an important legal protection for foreign investors in case of disputes.
Sample agreements provide helpful reference for negotiating designated investments agreement
For foreign investors who are new to investing in China, reviewing sample designated investment agreements can help them better understand the common practices and market standards. Many law firms and organizations provide sample agreements online that can serve as a helpful starting point. Investors should review sample agreements to understand typical terms for investment scale, payment schedule, profit distribution, governance structure, change of law clauses, dispute resolution etc. However, each deal is unique, so sample agreements need to be adapted to the specific situation. Investors should engage legal counsel to draft an agreement tailored to their deal. Useful references include O’Melveny’s sample agreement and UNCTAD’s commentary on key legal issues in Sino-foreign equity joint venture agreements.
Key issues like profit distribution, dispute resolution need focus when negotiating designated investments agreement
When negotiating a designated investment agreement, foreign investors need to pay special attention to a few key issues that will impact their rights. Profit distribution is a major concern, as foreign investors want to ensure they receive their fair share of profits. Negotiating an acceptable profit distribution ratio and profit repatriation schedule is essential. Dispute resolution methods like arbitration vs. litigation need to be evaluated. Foreign investors generally prefer international arbitration given uncertainties with Chinese litigation. Governing law is also crucial. Foreign investors typically want a neutral governing law while Chinese partners prefer Chinese law. Changes in law can significantly impact an investment, so the agreement should have robust protections for investors. Other key issues include payment schedule, governance rights, technology licensing, transfer of shares, and termination.
Designated investments agreement is critical for foreign investors in restricted Chinese industries. Investors should review sample agreements and focus on key terms like profit distribution, dispute resolution, and change of law clauses. With the help of legal counsel, investors can negotiate designated investment agreements that provide robust protections.