In just a few years, the company has wildly exceeded its expectations.
The company’s success can be attributed to zealous commitment to learning.
By this, I mean that the company understood that it had to abandon deeply entrenched legal and cultural assumptions to overcome the steep learning curve associated with finding success in the U.S. market.
I mention this because over at Forbes, Russell Flannery has an excellent guest post Seven Dos Andon’ts For Chinese Investors In The U.S.
The post does a fine job of summarizing some key points that helped my client find success in the U.S.
While the post covers 7 basic considerations Chinese companies should know before entering into the U.S. market, I’ve taken what I think are the 5 most important.
1. Draft Contracts in English
As the post points out, traditionally Chinese companies have drafted contracts in Chinese when doing business in the U.S.
This is a tactical mistake.
Because U.S. courts require that contracts be written in English, nuances in translating the Chinese contract to English often cause ambiguity.
For savvy U.S. attorneys, these ambiguities provide loopholes to exploit.
Just one loophole can potentially blow your case.
2. Know U.S. Labor Law.
While most Chinese companies understand that U.S. labor laws provide substantially more protection to employees than Chinese labor law, there are some U.S. labor laws that are often overlooked because they seem trivial.
One such “triviality” is employee meal breaks. In California, for example, employers must allow employees one uninterrupted 30 minute meal break for every five hours of work.
Just several months ago, one Chinese company paid a $200,000 settlement because it was unaware of the uninterrupted meal break requirement.
3. Alter Ego Doctrine and Personal Liability
A big misconception that many foreign investors have about corporate liability in the U.S. is that they can’t be held personally liable for the debts of the corporation.
However, most U.S. states follow the alter ego doctrine. This legal principal states that individual owners can be held personally liable for a companies’ debt or other liabilities.
This determination depends on a variety of factors including: “whether the company follows corporate formalities, whether the company shares common control of the same individuals or entities, and whether the company and the individual co-mingle funds.”
4. Discovery Requirements
In U.S. litigation, parties are required to respond to the other parties’ discovery requests. That is, each party is obligated to produce evidence to the opposing parties, even if the evidence is against themselves.
If you’re a Chinese owner and refuse to produce evidence that may not be in your favor, you will be in violation of U.S. state and/or federal law.
If a court finds that evidence was withheld, you risk losing your case.
5. But We Shook Hands
In China, business is done with handshakes and verbal agreements. Of course, this is completely different than the U.S. where written documentation is required.
While Chinese companies prefer to do business informally, in the U.S. even a small dispute such as an incorrect invoice or missing batch of orders will require written documentation.
No matter how many years that your Chinese company has been in business with the U.S. company, written documentation will be required.
While it may be a small point, a document confirming, for example, that “your invoice has been corrected to account for the substitution of X for Y” will ultimately save on costly litigation expenses.
Follow the 5 key points above, and you’ll be well on your way to becoming more familiar with the legal and cultural nuances of the U.S. market place.