How to Spot a Fake Chinese Company?
In practice, there are four common types of fake companies: non-existent companies, companies with abnormal business operations, companies with no previous business, and companies in no community.
1. Non-existent company
To determine the existence of a Chinese company, you’d better get information of its business license.
Furthermore, one should ensure that when referring to this Chinese company, transaction documents all specify its legal Chinese name, which should be consistent with that on its business license.
Many of our clients have encountered Chinese companies with only English names, whose Chinese names provided do not exist in the Chinese Enterprise Database.
In this case, should a breach of contract or fraud arise, you will not be able to indicate to the court whom you lodge a claim against.
2. Company with abnormal business operations
Some companies have not been operating at their registered address for long. If a company cannot be found by the company registration authority, it will be included in the list of abnormal business operations.
And naturally, if the company cannot be found by the company registration authority, its customers may not be able to find it after payment either.
3. Company with no previous business
Some companies have almost no business, which means they are incompetent in specific performance.
Typically, such a company has few assets for contract performance and its capacity to perform is fully dependent on its shareholders. Under the shield of the company’s limited liability principle, its shareholders cannot be required to perform.
4. Company in no community
No peers know the company and the company is not a member of any association or chamber of commerce, as if it is in isolation.
In short, be alert to these four types of companies, as they are very likely to be fake companies.
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