Who ought to indication your China OEM Arrangement?
This concern normally provides by itself when a Hong Kong or Taiwan entity desires the OEM settlement (a/k/a the agreement producing agreement or supplier arrangement) to be with it, and not with the PRC entity that will essentially be producing the merchandise. Our worldwide manufacturing lawyers continually offer with this difficulty when drafting China OEM agreements, normally in just one of the following 3 scenarios:
1. The Hong Kong/Taiwan entity is the mum or dad corporation of a PRC WFOE, and that WFOE owns and operates the factory that manufactures the products.
2. The Hong Kong/Taiwan entity has no ownership stake in the PRC entity that owns the manufacturing facility. Relatively, some or all of the house owners of Hong Kong/Taiwan entity are also the house owners of the PRC entity. Or perhaps the owners of the Hong Kong/Taiwan entity and the PRC entity are element of the exact same extended loved ones.
3. Neither the Hong Kong/Taiwan entity nor its owners have any money desire in the PRC entity. The Hong Kong/Taiwan entity is basically a revenue agent for the Chinese manufacturing unit.
While it is awesome to know the genuine partnership among the Hong Kong or Taiwan entity and the PRC manufacturing unit, it typically is not crucial for analyzing how to write the OEM contract. We generally choose our clients’ OEM agreements be with the PRC entity and not with the Hong Kong/Taiwan entity for the following good reasons:
- We know the PRC entity has assets because we know it owns a factory. Quite often the Hong Kong or the Taiwan firm has no assets past a rented business office with a few chairs, desks and pcs. We like our client have agreement and litigation leverage above a company with a factory than a corporation with some chairs. Also, a company with a manufacturing unit is much more probably to abide by a agreement 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 considerably the most possible entity to manufacture and offer our clients’ products in levels of competition with our shopper. We consequently want that manufacturer to sign a deal that stops it from performing this sort of a factor.
- If the created merchandise is of weak high-quality or shipped late, it is easier to deal with the entity that essentially did the production.
- We want the payments to go to the entity that essentially does the manufacturing, rather than an interposed Hong Kong or Taiwan entity that gets payment for the producing, and we want the OEM agreement to mirror this. For a person factor, the PRC manufacturing facility could claim it was hardly ever paid by the Hong Kong or the Taiwan factory, and use that as a purpose not to manufacture for our client. Sure, this problem can be dealt with by deal, but carrying out so complicates points, not the very least because it provides a different jurisdiction into play.
What are you observing out there?