Cross-Border M&A Due Diligence Checklist: 15 Core Documents Under China’s New Company Law

China’s revised Company Law, effective July 1, 2024, introduces sweeping changes impacting cross-border mergers and acquisitions. For overseas investors, thorough due diligence is now critical to mitigate risks like shareholder liability, compliance gaps, and hidden obligations.

This checklist identifies 15 essential documents required under the new legal framework. Securing these ensures your M&A target operates legally and aligns with your risk tolerance.

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Why the New Law Demands Rigorous Due Diligence

Key changes increasing due diligence complexity:

1. 5-Year Capital Contribution Deadline (Art. 47):
   Shareholders must fully pay subscribed capital within 5 years of incorporation. Unpaid capital exposes buyers to successor liability.
2. Accelerated Shareholder Liability (Art. 54):
   Creditors can force early capital contributions if the company defaults on debts.
3. Stricter Director Oversight (Art. 51, 178):
   Directors must verify shareholder contributions. Negligence triggers personal liability.
4. Enhanced Transparency Rules (Art. 40):
   Capital contributions, shareholder changes, and licenses must be publicly disclosed via the National Enterprise Credit Information Publicity System.

Failure to verify these areas risks:

• Inheriting unpaid capital obligations
• Voided transactions due to non-compliance
• Post-acquisition financial penalties

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The 15 Core Documents for M&A Due Diligence

I. Corporate Governance & Legitimacy

1. Business License (营业执照)
   Verify: Registered address, legal representative, scope. New Risk (Art. 33): E-filed licenses hold equal legal weight—cross-check online records.
2. Articles of Association (公司章程)
   Critical Clauses: Capital contribution deadlines (must align with 5-year rule), shareholder voting rights, profit distribution.
3. Shareholder Register (股东名册) (Art. 56, 102)
   Confirm: Names, contribution amounts, payment dates. Red Flag: Shareholders with unpaid capital (potential post-acquisition liabilities).
4. Capital Contribution Certificates (出资证明书) (Art. 55)
   Audit: Proof of paid-in capital (bank records, asset valuations).

II. Financial & Compliance Health

5. Latest Financial Audit Report
   Focus: Debt levels, liquidity. New Context (Art. 54): High debt increases risk of creditor claims forcing early capital calls.
6. Tax Compliance Certificates (税务清缴证明)
   Requirement (Art. 234): Settled taxes are prioritized during liquidation—unpaid taxes signal financial distress.
7. Social Security & Housing Fund Payments
   Check (Art. 16): Non-payment violates labor laws and risks fines/claims.
8. Asset Ownership Titles
   Validate: Property, IP, equipment ownership. Risk (Art. 23): Undisclosed liens can void transactions.

III. Legal & Operational Risks

9. Litigation/Arbitration Records
   Search: Court databases, arbitration centers. Exposure (Art. 191): Directors may be personally liable for misconduct.
10. Permits & Licenses
    Industry-Specific: Manufacturing, finance, healthcare require sector-specific approvals. New Rule (Art. 9): Operating beyond licensed scope voids contracts.
11. Material Contracts (Loans, Leases, Supply)
    Review: Penalty clauses, termination rights. Post-Acquisition Risk: Binding obligations transfer to buyers.
12. IP Registrations (Trademarks, Patents)
    Confirm: Validity, ownership disputes. Art. 48: IP can be capital contribution—verify valuation reports.

IV. New Law-Specific Documents

13. Board Meeting Minutes on Capital Verification (Art. 51)
    Critical: Proof directors verified shareholder contributions. Missing records = director liability risk.
14. Disqualified Shareholder/Director Declaration (Art. 178)
    Screen: Directors/shareholders with fraud convictions or bankruptcy history are barred.
15. Related-Party Transaction Approvals (Art. 182)
    Requirement: Board/shareholder approval for deals with affiliates. Undisclosed transactions are voidable.

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Practical Due Diligence Tips Under the New Law

• Demand Digitally Filed Records: E-documents (e.g., licenses, audit reports) have equal legal standing (Art. 33).
• Trace Capital Flows: Verify bank records for shareholder contributions—avoid “ghost capital.”
• Interview Key Staff: Directors must confirm capital verification processes (Art. 51).
• Public Database Cross-Check: Validate disclosures via National Enterprise Credit Information Publicity System (Art. 40).

⚠️ High-Risk Scenarios

• Target has shareholders with unpaid capital contributions.
• Directors failed to issue capital call notices (Art. 52).
• Discrepancies between internal records and public filings.

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Conclusion: Protect Your Investment

China’s new Company Law shifts risk to buyers who neglect due diligence. Missing just one document—like unverified capital contributions—can trigger costly liabilities post-acquisition.

Verify before you trust. Ensure every record aligns with the 2024 framework. For complex targets, partner with China-specialized due diligence providers to navigate disclosure gaps and cultural nuances.

(At ChinaBizInsight, we help investors verify Chinese entities with authoritative company reports, document retrievals, and Apostille/Legalization services. Access reliable data at cnbizinsight.com.)