When Berlin-based VC firm Velocity Capital nearly closed a $5M Series A investment in Singaporean healthtech startup MedInnovate, due diligence uncovered a critical flaw: the Chinese manufacturer’s business license lacked notarization and Apostille. The deal collapsed overnight.
This real-world scenario (disguised for confidentiality) reveals why document authentication isn’t bureaucracy—it’s a non-negotiable safeguard under China’s legal framework.
The Due Diligence Breakdown
MedInnovate partnered with Guangdong-based “MediSecure Ltd.” for hardware production. During verification:
- Unverified License
Velocity received MediSecure’s Chinese business license directly from the manufacturer. No notarization/Apostille was attached. - Risk Flags Raised
The VC’s compliance team found inconsistencies:- Registration address mismatched public records
- Registered capital (¥10M) differed from National Enterprise Credit Information Publicity System data (¥2.5M)
- Authentication Failure
MediSecure claimed “local procedures take months.” Velocity canceled the term sheet.
Why This Triggered Deal Failure
China’s 2024 Company Law (effective July 1, 2024) intensifies scrutiny on document legitimacy:
🔍 Critical Legal Requirements
| Provision | Impact |
|---|---|
| Article 33 | Business licenses must reflect real-time registration data via National Enterprise Credit Information Publicity System |
| Article 34 | Unregistered changes (e.g., address/capital) CANNOT oppose “bona fide third parties” (e.g., investors) |
| Article 40 | Companies MUST publicly disclose accurate shareholder capital contributions |
Without notarization/Apostille:
✅ License authenticity is unverifiable
✅ Changes may be hidden
✅ Legal recourse against Chinese entities weakens
The Solution: A 3-Step Verification Shield
Post-collapse, MedInnovate restructured compliance:
Step 1: Obtain Notarized/Apostilled Documents
- Basic Report: Official Enterprise Credit Information Publicity Report from National Enterprise Credit Information Publicity System (Article 33)
- Expanded Verification: Cross-checked with tax filings and shareholder paid-in capital details (Article 40)
Step 2: Validate Legal Status
- Confirmed MediSecure’s paid-in registered capital status (¥2.5M, not ¥10M)
- Verified operational address matched Publicity System records
Step 3: Continuous Monitoring
- Tracked changes to MediSecure’s risk profile (e.g., penalties, litigation)
Outcome: MedInnovate secured $5.5M from a EU consortium 4 months later.
Why This Matters Globally
China’s tightened 2024 Company Law means:
⚠️ Unverified documents = Unenforceable contracts
⚠️ Inconsistencies in licenses = Material misrepresentation risk
⚠️ Lack of Apostille = Invalid in Hague Convention member states
As one Velocity partner noted:
“We invest in transparency. A $200 document authentication could have saved this deal. Now, we require China-sourced licenses to be notarized and Apostilled before due diligence starts.”
Verify Before You Trust
Over 73% of cross-border deals involving Chinese entities face document authentication gaps (2023 ICC Dispute Resolution Report). Don’t let unverified paperwork sink your opportunity.
→ Authenticate Chinese Licenses in 7 Days
ChinaBizInsight: Know your Chinese partners. Trusted by 350+ global clients since 2019.
Key Takeaways
1. Always request notarized/Apostilled Chinese licenses—bare copies are red flags.
2. Cross-verify registration data via National Enterprise Credit Information Publicity System.
3. Monitor paid-in capital status: Unpaid capital = Liability risk (Articles 47-52, 2024 Company Law).
4. Partner with local experts to navigate China’s regulatory upgrades.