How to choose the legal platform during co-operation with CN JV? We live in times when China is one of the kings of the global economy. China entered the path where after being a world factory, today is world investor. For example there is a special project to Europe – The New Silk Road, because Europe is the most important business partner for Mainland.
There are many examples of cross-points where investment capital from China may be several times multiplied by rollouts of European businesses, with both side benefits.
In this article we concentrate on the formal (legal frames and incorporation) way how to setup the co-operation of the European business with the Chines partner at such investment. What legal frames can be used – because there is nothing like “EU law” and as the opposition is Chinese Law. Should be taken Swiss law for example (but terrible expensive), or German (very regulated) or Romanian (very open at this moment)? We are in the proof that using Polish law and accountancy rules is a good compromise for building the legal incorporation and accounting for assets during co-operation with Chinese investment capital.
Nowadays, a company’s assets should not be seen only as money and the company’s ability to earn. There are many mechanisms that can translate the value of the elements into capital. Still, many companies prefer to stay in business, which is seemingly cheaper to maintain, using the path of 90’s. This may give fast results however, in long-term investment period this is much less profitable.
The process of management assets value should be focused on development, R&D works and notification in daily management of intangible and legal assets that were produced.
This is a major element of building the perspective capital value, which can affect the overall value of business assets and in final round, in overall value of the company. To understand capital value, one needs to understand the basics of capital definition within the terms of Polish law. Capital is the value of the possessed property, which can have different forms. Businesses can provide many capital assets. Many entrepreneurs identify their possessions as only their own fixed assets, such as real estate, technical equipment. The definition of assets is much broader and also applies to intangible assets, which in particular, in innovative companies may represent a significant fraction of their value.
Such components may be, for example, software purchased, software made on its own resources, commercially-generated sales agreements reflecting the number of customers, domains and values associated with the brand and its market position, articles and blogs that generate sales, images, reports, databases.
Transfer of assets
All these elements must be transferable, meaning they may be the subject of potential trade. For example, a properly managed customer database can be legitimately trafficked with personal data, with the value of such a single customer base ranging from a few cents to several hundred dollars, depending on the complexity and specificity of that customer.
One’s own software can be market-worth much more than the value of own involvement, so why not to recover that difference. Brand value in the course of many years of business can be enormous if it is precisely and willingly identified by customers. A very important asset in companies that is most often forgot is also know-how, which is knowledge in a fixed form.
Knowledge for years has been one of the most valued ingredients that entrepreneurs have meticulously protected. Know-how written (in fixed form), which can be sold, even in the form of a license, can be the backbone of Polish companies’ capital values and can be a window into the world of innovation under the name of Polish witchcraft. This is a common Israeli model of cooperation with China. Why do not use such model that is tested over years? But the „dish” has to be ready, not in a form of „ingredients”. This is where our (51goshanghai) role starts as a master chef.
Already at the stage of preparation of the company to operate, many elements are created, which can reach the value of several hundred thousand EUR in the case of research and development companies, commercializing inventiveness. Each successive day of the company’s operation adds a brick to the resulting building, which may be reflected in the form of capital. This asset, in the next phase, may be reflected in the share capital, which is a formal and measurable form of capital in the company. This is a huge advantage in heavy negotiations with Chinese investors.
At present, many business activities may have hidden assets ranging from tens of thousands to even several million EUR without realizing it. The mechanism of translating this asset into a capital company is quite simple. It requires a proper and legal preparation for the valuation and use of legal mechanisms of transfer of such technology. Taxes related to these transactions are often deferred until the sale of shares in a company, which is an excellent opportunity to recover the hidden assets of the company.
With the use of appropriate methods, such as market method and replacement valuation, one is not able to talk about property speculation. Such valuations reflect the actual value of companies at the moment of transferring business assets to a capital company. So this has nothing to do with the so-called myth of capital bubble. Using Polish law and known mechanisms, with our help of 51goshanghai one can significantly influence the growth of capital values, thus strengthening their position on world markets, giving more probability of investment due to the good preparation to the whole negotiation process. And hence, only one step to further investment and development of these companies in a win-win strategy.