Recently, Venture Hype caught up with John J. Maalouf, a globally recognized legal expert who’s been ranked by the United States Lawyer Rankings as one of the “Nation’s Top 10 International Trade & Finance Lawyers” – four years in a row in 2006, 2007, 2008 and 2009. Maalouf has also received the highest recognition for legal ability and ethical standards from The Martindale-Hubbell Peer Review Ratings. Both Maalouf and his cases have been featured on American news programs 60 Minutes, 20/20, CNN and Wall Street Journal.
Maalouf’s firm, Maalouf Ashford & Talbot, LLP, regularly advises clients ranging from startups and international investors to multinational corporations. Areas of practice include entrepreneurial services, venture capital, private equity investments, private placements, IPO’s, M&A’s, international finance, and foreign investment in China and the Middle East.
* Edited Interview
VH: John, can you tell us about Maalouf Ashford & Talbot and the type of services it offers to early-stage investors?
JM: Maalouf Ashford & Talbot has a worldwide reputation for quality of advice and breadth of expertise. Our attorneys are highly experienced in business law, corporate, partnership and limited liability company matters, in addition to taxation, real estate, intellectual property, and litigation. They’re ranked among the Top 10 in the entire United States in the areas of International Trade & Finance Law.
In order to protect the assets of our early-stage investor clients and to maximize their profits, we structure companies properly from the beginning. The first step is to analyze the business plan, and then advice the type of corporate entity that best fits that particular business. We then draft the corporate governance documents, provide guidance on tax minimization strategies, and negotiate and structure agreements with service providers or joint venture partners.
VH: Besides New York, London and Boston, you also have offices in Hong Kong and Shanghai. What are the major differences you see in the current investment climate between Hong Kong and Shanghai?
JM: Both Hong Kong and Shanghai are world financial capitals and will only continue to grow in economic power and prominence over the next 5 to 10 years. China’s relationship to Hong Kong is unique in many ways in that China is one country with essentially two legal systems.
Hong Kong is considered a “special administrative region” (SAR). Depending on the specific goals and strategy of a business, Hong Kong’s legal system may be more suited to a particular company than the rules currently prevailing in mainland China. Therefore, we often recommend clients to set up operations in Hong Kong.
Mainland China, however, has been moving very quickly to enact new legislation that’s increasingly friendly toward foreign investment. These changes will make Shanghai, the largest financial center in mainland China, even more attractive to foreign investors.
VH: With your help, a technology startup was able to complete private placements and acquire two competitors. Can you briefly define private placements and mergers and acquisitions? How are the processes different in China?
JM: Initial public offering, or IPO, is the first time a company sells shares of its stock to the public to raise money. In most countries, going public requires registration with a governmental agency, such as the SEC (Securities and Exchange Commission) in the United States. This is a lengthy and expensive process; many smaller companies can’t spare the funds necessary to take this route.
With “private placement,” we can take advantage of certain rules, regulations and legal loopholes that provide exemptions from registration, which allows the company to legally sell stock to investors without the expense of an IPO. Private placements then, can be fruitful for startups.
“Mergers and Acquisitions,” or M&A’s, are transactions where one company takes over another company, either because it’s larger and more financially stable or because it’s been able to structure a clever strategy to gain control over the competitor company. The deals can be very complex, but if done properly, a company can take over a major competitor and double its size and revenue stream almost overnight.
For many years, China has placed certain restrictions on the acquisition of Chinese companies by foreign entities. New legislation, however, has been drafted recently, which will allow cross border M&A’s of Chinese companies.
The most important distinction between the U.S. and China is that China has a far more stringent regulatory approval process. We have excellent relationships with the Chinese Ministry of Commerce and can frequently expedite the regulatory approval process.
Join Venture Hype tomorrow as Maalouf tells us some of the provisions investors should consider when investing in Chinese startups.
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* For series, references are published in the last installment of the series.
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