Helen Saulnier 
Who should signal your China OEM Settlement?
This challenge ordinarily provides itself when a Hong Kong or Taiwan entity would like the OEM arrangement (a/k/a the deal production agreement or supplier agreement) to be with it, and not with the PRC entity that will essentially be production the item. Our worldwide manufacturing legal professionals continuously deal with this situation when drafting China OEM agreements, commonly in 1 of the next three scenarios:
1. The Hong Kong/Taiwan entity is the parent enterprise of a PRC WFOE, and that WFOE owns and operates the factory that manufactures the merchandise.
2. The Hong Kong/Taiwan entity has no ownership stake in the PRC entity that owns the manufacturing facility. Fairly, some or all of the entrepreneurs of Hong Kong/Taiwan entity are also the homeowners of the PRC entity. Or perhaps the entrepreneurs of the Hong Kong/Taiwan entity and the PRC entity are element of the same prolonged household.
3. Neither the Hong Kong/Taiwan entity nor its owners have any money fascination in the PRC entity. The Hong Kong/Taiwan entity is simply a product sales agent for the Chinese manufacturing unit.
Nevertheless it is nice to know the real relationship involving the Hong Kong or Taiwan entity and the PRC manufacturing facility, it generally is not vital for pinpointing how to generate the OEM contract. We generally favor our clients’ OEM agreements be with the PRC entity and not with the Hong Kong/Taiwan entity for the adhering to motives:
- We know the PRC entity has assets due to the fact we know it owns a manufacturing facility. Quite often the Hong Kong or the Taiwan firm has no assets outside of a rented office environment with a few chairs, desks and personal computers. We want our customer have contract and litigation leverage more than a corporation with a factory than a organization with some chairs. Also, a business with a manufacturing unit is extra most likely to abide by a contract than a organization with some chairs.
- Our OEM agreements comprise 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 very likely entity to manufacture and promote our clients’ items in opposition with our client. We consequently want that producer to indicator a agreement that stops it from doing these a matter.
- If the produced products is of very poor high-quality or shipped late, it is easier to deal with the entity that actually did the production.
- We want the payments to go to the entity that actually does the manufacturing, rather than an interposed Hong Kong or Taiwan entity that receives payment for the production, and we want the OEM agreement to reflect this. For one thing, the PRC factory could declare it was hardly ever paid out by the Hong Kong or the Taiwan manufacturing unit, and use that as a rationale not to manufacture for our shopper. Yes, this challenge can be dealt with by deal, but performing so complicates points, not least since it provides a different jurisdiction into participate in.
What are you looking at out there?
