Partnership (China)

A partnership in the People's Republic of China is a business entity governed by the [http://www.fdi.gov.cn/pub/FDI_EN/Laws/GeneralLawsandRegulations/BasicLaws/P020061018643910006967.pdf Partnership Enterprise Law] passed by order of the President of the People's Republic of China to authorize and govern partnership enterprises. A partnership is a type of business entity in which partners share with each other the profits or losses of the business undertaking in which all have invested.

History

From 1368 to 1911, partnerships with distributive shares were the principal form of a business entity that investors ran coal mines. [Fang Liufang; Xia Yuantao; Sang Binxue; Danian Zhang, Law and Contemporary Problems, Vol. 52, No. 3, The Emerging Framework of Chinese Civil Law: [Part 2] . (Summer, 1989), pp. 43-67, 44.]

In the modern era, most enterprises were partnerships in the form of general partnerships levying unlimited liability on the partners. [Fang Liufang; Xia Yuantao; Sang Binxue; Danian Zhang Law and Contemporary Problems, Vol. 52, No. 3, The Emerging Framework of Chinese Civil Law: [Part 2] . (Summer, 1989), pp. 43-67, 46.] In 1933, 41% of factories were run by partnerships and 20% were sole proprietorships. [Fang Liufang; Xia Yuantao; Sang Binxue; Danian Zhang Law and Contemporary Problems, Vol. 52, No. 3, The Emerging Framework of Chinese Civil Law: [Part 2] . (Summer, 1989), pp. 43-67, 46.] After the end of the 1950s centralization of the economy caused the partnership form to vanish for nearly 30 years. [Fang Liufang; Xia Yuantao; Sang Binxue; Danian ZhangLaw and Contemporary Problems, Vol. 52, No. 3, The Emerging Framework of Chinese Civil Law: [Part 2] . (Summer, 1989), pp. 43-67, 47.] In the 1980s partnerships returned with different names to avoid the sensitive label of private ownership. [Fang Liufang; Xia Yuantao; Sang Binxue; Danian Zhang, Law and Contemporary Problems, Vol. 52, No. 3, The Emerging Framework of Chinese Civil Law: [Part 2] . (Summer, 1989), pp. 43-67, 47.]

On 1 June 2007, the Partnership Enterprise Law came into force and established partnerships as a legal business entity. [ [http://www.fdi.gov.cn/pub/FDI_EN/Laws/GeneralLawsandRegulations/BasicLaws/P020061018643910006967.pdf Partnership Enterprise Law] ]

Partnership enterprise

The term partnership enterprise refers to general partnerships and limited liability partnerships which may be established within China by natural persons, legal persons and other organizations. [ [http://www.fdi.gov.cn/pub/FDI_EN/Laws/GeneralLawsandRegulations/BasicLaws/P020061018643910006967.pdf Partnership Enterprise Law, Chapter 1, article2] ] A state-funded company, state-owned company, listed company, public welfare-oriented public institution or social organization may not become a general partner. [ [http://www.fdi.gov.cn/pub/FDI_EN/Laws/GeneralLawsandRegulations/BasicLaws/P020061018643910006967.pdf Partnership Enterprise Law, Chapter 1, article 3] ]

General partnership

A general partnership (普通合伙) may be formed by general partners who bear unlimited joint and several liability for the debts of the partnership. [ [http://www.fdi.gov.cn/pub/FDI_EN/Laws/GeneralLawsandRegulations/BasicLaws/P020061018643910006967.pdf Partnership Enterprise Law, Chapter 1, article2] ]

Limited partnership

A limited partnership (有限合伙) is formed by a combination of "general partners" and "limited partners" where the "limited partners" bear the liabilities for the partnership's debts to the extent of their capital contributions. [ [http://www.fdi.gov.cn/pub/FDI_EN/Laws/GeneralLawsandRegulations/BasicLaws/P020061018643910006967.pdf Partnership Enterprise Law, Chapter 1, article2] ]

pecial general partnership

A special general partnership (特殊普通合伙) resembles a general partnership except that it must be a professional service institution offering services requiring professional knowledge and special skills. The structure shields co-partners from liabilities due to the willful misconduct or gross negligence of one partner or a group of partners. [ [http://www.fdi.gov.cn/pub/FDI_EN/Laws/GeneralLawsandRegulations/BasicLaws/P020061018643910006967.pdf Partnership Enterprise Law, Chapter II, section 6, article 55] ] It is very similar to limited liability partnership in America and Europe.

Establishment

A partnerhips requires a written agreement between the partners. [ [http://www.fdi.gov.cn/pub/FDI_EN/Laws/GeneralLawsandRegulations/BasicLaws/P020061018643910006967.pdf Partnership Enterprise Law,Chapter 1, article 4] ] This written agreement must be submitted to the business registration government body along with the identity of the partners. [ [http://www.fdi.gov.cn/pub/FDI_EN/Laws/GeneralLawsandRegulations/BasicLaws/P020061018643910006967.pdf Partnership Enterprise Law,Chapter 1, article 9] ]

A partnership must abide by the following requirements:
*Have 2 or more partners
*Have a written partnership agreement;
*Have capital contributions subscribed to or actually paid by the partners;
*Have a name and a place of business for the partnership enterprise; and
*Abide by any other conditions as provided for the law;

Should it be a general partnership or limited partnership then that shall be in its name. [ [http://www.fdi.gov.cn/pub/FDI_EN/Laws/GeneralLawsandRegulations/BasicLaws/P020061018643910006967.pdf Partnership Enterprise Law,Chapter II, section 1, article 14] ]

A limited partnership may not have less than 2 partners where one of them is a general partner nor may it have more than fifty partners. [ [http://www.fdi.gov.cn/pub/FDI_EN/Laws/GeneralLawsandRegulations/BasicLaws/P020061018643910006967.pdf Partnership Enterprise Law, Chapter III, article 61] ]

Liabilities

A partnership must pay all its debts with property contributed to the partnership by the partners. [ [http://www.fdi.gov.cn/pub/FDI_EN/Laws/GeneralLawsandRegulations/BasicLaws/P020061018643910006967.pdf Partnership Enterprise Law, Chapter II, section 4, article 38] ]

If the partnership is a general partnership then the partners bear joint and several liability. [ [http://www.fdi.gov.cn/pub/FDI_EN/Laws/GeneralLawsandRegulations/BasicLaws/P020061018643910006967.pdf Partnership Enterprise Law, Chapter II, section 4, article 39] ]

A limited partner may not conclude partnership operations nor may such a partner represent the partnership to 3rd parties. [ [http://www.fdi.gov.cn/pub/FDI_EN/Laws/GeneralLawsandRegulations/BasicLaws/P020061018643910006967.pdf Partnership Enterprise Law, Chapter III, article 68] ]

Capital contributions

A partner may contribute capital to the partnership to garner a share of the partnership's profits or losses. A capital contribution may include money, intellectual property right, land use right or other properties, or labor services at a valuation determined by agreement among the partners. [ [http://www.fdi.gov.cn/pub/FDI_EN/Laws/GeneralLawsandRegulations/BasicLaws/P020061018643910006967.pdf Partnership Enterprise Law,Chapter II, section 1, article 16] ]

If the partnership is a limited partnership, then the limited partners may not make capital contributions with labor services. [ [http://www.fdi.gov.cn/pub/FDI_EN/Laws/GeneralLawsandRegulations/BasicLaws/P020061018643910006967.pdf Partnership Enterprise Law, Chapter III, article 64] ]

Distributions

The default distribution scheme of profits or losses follows the proportion to capital contributions made by the partners. [ [http://www.fdi.gov.cn/pub/FDI_EN/Laws/GeneralLawsandRegulations/BasicLaws/P020061018643910006967.pdf Partnership Enterprise Law,Chapter II, section 3, article 33] ] However, the distribution scheme may follow an informal negotiated agreement or abide by scheme adopted in the partnership agreement. [ [http://www.fdi.gov.cn/pub/FDI_EN/Laws/GeneralLawsandRegulations/BasicLaws/P020061018643910006967.pdf Partnership Enterprise Law,Chapter II, section 3, article 33] ] If the proportions of capital contributions cannot be discerned, then the profits or losses will be distributed equally by the partners. [ [http://www.fdi.gov.cn/pub/FDI_EN/Laws/GeneralLawsandRegulations/BasicLaws/P020061018643910006967.pdf Partnership Enterprise Law,Chapter II, section 3, article 33] ]

The partnership agreement may not distribute all losses or all profits to just one or a group of partners within the partnership. [ [http://www.fdi.gov.cn/pub/FDI_EN/Laws/GeneralLawsandRegulations/BasicLaws/P020061018643910006967.pdf Partnership Enterprise Law,Chapter II, section 3, article 33] ]

Taxation

The partners shall pay their respective share of the partnership income. [ [http://www.fdi.gov.cn/pub/FDI_EN/Laws/GeneralLawsandRegulations/BasicLaws/P020061018643910006967.pdf Partnership Enterprise Law,Chapter 1, article 6] ]

Notes

ee also

*Partnership
*Partnership taxation
*Law of the People's Republic of China


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