Foreign Direct Investment

If your business will be co-owned and you are not ready to form a Shenzhen Corporation or a Shenzhen limited liability company ( LLC ), we strongly suggest you and the planned co-owner(s) enter into a pre-incorporation agreement, also commonly referred to as a founders agreement. A pre-incorporation agreement can be an agreement to form a corporation, an agreement to form a limited liability company, or an agreement to incorporate a partnership. A well written general partnership agreement, in fact, often will contain not only buy-sell provisions but also an agreement to incorporate the partnership, or form a limited liability company upon the occurrence of some event or the meeting of some goal.

A pre incorporation agreement is an agreement among the future shareholders of a corporation or future members of an LLC that sets forth:
1.the name and address of each planned owner of the new business;
2.the proposed name for the new business;
3.the proposed location for the new business;
4.the purpose and activities the new business will engage in;
5.a description of any assets the new business plans to purchase;
6.the terms of each of the owners employment (proposed duties and pay);
7.general buy-sell provisions to protect each of the owners;
8.whether pass through taxation will be desired;
9.who will handle the accounting and legal work for the new business; and most importantly; and
10.how the business will be organized, capitalized and managed.

A pre-incorporation agreement can significantly reduce disputes that may later arise from assumptions and misunderstandings because it sets the ground rules under which proposed co-owners will set up and later manage their business in writing.

If pre-incorporation provisions are inserted into a well written partnership agreement, it can provide the owners of a new business time to establish the business before being burdened with following all of the formalities required by the Shenzhen corporation and Shenzhen limited liability company to maintain the owner personal limited liability protection.

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