Section 409 requires registrants to disclose information on material changes in their financial condition or operations in a specific time frame upon discovery of such changes. These disclosures are to be easy to understand and supported by quantitative and qualitative information as appropriate. As is the same as the Section 302 requirements, managers of U.S.-China business have the responsibility of reporting such changes to senior executives in an immediate and timely manner under Section 409, as well.

Section 802 imposes penalties including prison terms for altering, destroying, concealing or falsifying records and documents with the intended purpose to obstruct or influence a legal investigation. This section also imposes penalties including imprisonment on any accountant who knowingly and willfully violates the requirements of maintenance of all audit or review papers for a period of five years.

Although Sarbanes-Oxley primarily focuses on companies registered with the SEC, privately held companies should consider compliance with an eye to a future initial public offering (generally advised to be 12 months in advance) or possible merger and acquisition with a listed company. The value of either type of corporate transaction can be greatly enhanced with foresight to SOX compliance.

Also, certain provisions of Sarbanes-Oxley apply to private companies, including their foreign subsidiaries. Managers of U.S.-China businesses should be aware of these provisions, which include:

- Penalties for retaliation against whistleblowers;

- Penalties for destroying or tampering with documents;

- Extension of the statute of limitations for securities fraud;

- Bankruptcy does not discharge financial obligations arising from securities law violations;

- Increased criminal penalties for mail and wire fraud;

- Potential officer and director bans for securities law violations.

Hank Bourg is senior associate of Dezan Shira & Associates' Beijing Office (www.dezshira.com).