【正文】 chanism to help the buyer mitigate potential risk exposure arising from contingent liabilities. (It can also be used to bridge differences between a seller and buyer over valuation of the pany.) For instance, a buyer could agree to make an additional payment several years after the closing if the venture achieves a specified earning target and there has been no material breach of representations and warranties by the seller. In addition to careful drafting to minimize the risk of gamesmanship in defining the financial targets and calculations of earnout payments, special consideration needs to be given to creating a mechanism that is enforceable and practical under PRC law. If an earnout is treated as part of the purchase consideration, then it will be subject to the same payment deadline applicable to the purchase price, which is within a year following the issuance of the new business license of the target. Consequently, it is necessary to craft the earnout language artfully to make sure that any additional payment, in the eyes of regulatory authorities, judges, and arbitrators, does not constitute payment of a portion of the purchase price. For instance, a buyer could instead agree to pay a consulting fee to the seller if certain liabilities are not triggered within two years of the closing. However, the seller may be wary of the tax implications of such an Another option is a buyback arrangement, where the buyer can request that the seller repurchase the equity interests originally sold to the buyer at a fixed price upon the occurrence of specified events, such as the pany39。s books. Through these transactions, profits may be shifted to domestic entities that are in a loss position or to offshore entities such as those in Hong Kong. If it is determined that a transaction has violated PRC transferpricing laws, the pany may have to pay back taxes and penalties. Buyers should also keep in mind another important aspect of Chinese tax law— there is generally no statute of limitations for tax liabilities. Awareness of this circumstance may be particularly important when allocating tax exposures and entering into related indemnification or other arrangements. Employment issues frequently arise when the target is a stateowned enterprise with significant labor redundancy. Major layoffs might trigger worker protests and other social unrest, thereby politicizing the transaction and attracting unwanted attention from the local government authorities. Another frequently encountered issue is how much of the workforce the target pany may reduce after the acquisition. This is often a heavily negotiated issue, and the seller may even bring it up again at the last minute, hoping the buyer will promise. Given the political plications of employment matters, it would be prudent for the buyer to take a firm stand about its position, negotiate relentlessly upfront, and resist the temptation to leave this issue behind for future friendly discussion. Once the deal is otherwise cut, discussions on cutting back the workforce are likely to be neither pleasant nor friendly. Finally, one of the most difficult headaches for potential buyers of Chinese panies is the legacy issue inherited from former stateowned enterprises or created during the reform and restructuring (., privatization) process. Buyers of privately owned panies that were restructured or converted from former stateowned enterprises should be alert to possible violations and liabilities associated with the prior restructurings or management buyouts. A normal duediligence investigation frequently will not reveal much in terms of such legacy problems, because any problematic elements of the pany39。s bank borrowings, and the same assets might have been used multiple times for making (registered) capital contributions in different panies. The buyer also needs to be extremely careful if substantial assets of a target pany were bought from the bankruptcy auction of a stateowned enterprise. If the process was not properly supervised by the court and the case was not effectively closed, the sale could risk being overturned because of a flawed auction process. Finally, prospective buyers must be vigilant and vigorous in title search and verification. Many stateowned enterprises, and sometimes even privately owned panies, may use or claim to own land officially labeled as allocated land, which is provided by the government at nominal cost (or no cost at all) bu