CHINA Law and Practice Contributed by: Shuting Qi, Han Kun Law Offices
However, notwithstanding the aforementioned, in case a deal is unable to stay confidential, where mate - rial non-public information has been leaked or mar - ket rumours or abnormal dealings have emerged, the listed company must promptly disclose the relevant information. Accordingly, non-binding letters of intent may trigger disclosure upon signing unless such information is itself insignificant to affect the share price. Once defin - itive transaction agreements are executed, immediate public disclosure is mandatory. However, mandatory disclosure obligations may arise during the interim period of the transaction. 5.2 Market Practice on Timing In practice, disclosure timing by listed company boards sometimes diverges from the strict legal threshold in the direction of earlier disclosure. Some companies prefer to issue preliminary disclosure announcements acknowledging that material discus - sions are underway before legally required, to manage market expectations and prevent disorderly trading. Conversely, for transactions involving highly sensi - tive negotiations, companies occasionally seek stock exchange approval to suspend trading and delay public announcement until definitive agreements are finalised. 5.3 Scope of Due Diligence In China’s negotiated business combinations, a multi- dimensional due diligence is standard. Its scope var - ies based on transaction complexity and whether the target is a listed company, a private enterprise or a state-owned entity, and mainly covers the following aspects: • Legal due diligence: Review of corporate status, equity structure and encumbrances, core asset ownership, material contracts, regulatory permits and pending litigation/penalties. • Financial due diligence: Analysis of historical finan - cial statements, accounting standard alignment, profit quality validation, asset-liability penetration check and related transaction/transfer pricing compliance.
• Tax due diligence: Review of tax compliance sta - tus, preferential policy eligibility, tax planning risks, and unresolved tax disputes or inspections. • Operational and regulatory due diligence: Focusing on key licences, permits and regulatory approvals required to conduct the target’s business, as well as supply chain resilience, data compliance, busi - ness continuity and key personnel risks. • Human resources due diligence: Review of labour contract legality, company incentive systems and Standstill provisions are frequently used in M&A trans - actions involving listed companies in China. These provisions are routinely included in confidentiality agreements that last for a predetermined period of time. They prohibit buyers from purchasing shares in the secondary market during negotiations. Exclusivity is a common and critical protection for buyers in China’s M&A practice. It restricts sellers from negotiating with competing bidders for a defined peri - od while buyers conduct due diligence or negotiation. This mechanism also prevents a seller from using the buyer’s offer to attract higher bids from third parties. 5.5 Definitive Agreements It is both permissible and well-established market practice in China to document tender offer terms and conditions in a definitive agreement in the form of a tender offer report. An acquirer that intends to purchase shares of a listed company by means of a tender offer must publicly announce the tender offer terms and conditions, which are fully set out in the tender offer report. corporate cultural fit assessment. 5.4 Standstills or Exclusivity 6. Structuring 6.1 Length of Process for Acquisition/Sale The timeline for acquiring or selling a business in Chi - na varies significantly based on transaction structure, the industry in which the business operates, applica - ble regulatory requirements, and the type of business (SOE vs non-SOE). Key determinants include the fol - lowing:
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