Partnership Enterprise Formation
A Partnership Enterprise is an association of two or more persons to carry on a business for profit. Two or more than two foreign enterprises or individuals could establish their partnership enterprises in China or cooperate with Chinese enterprises or individuals to establish their partnership enterprises in China. The partnership enterprise need to be registered legally by authorized government department, its registration procedure is definitely different to WOFE or China-foreign Joint Venture companies.
The foreign enterprises or individuals with high technology or advanced management experience, who is encouraged to setup Partnership Enterprise in China, it could further accelerate the development of modern Service Industry etc.
Types of Partnership Enterprise:
The types of partnership enterprises include general partnership enterprises (including special General Partnership) and limited liability partnership enterprises.
The general partnership enterprise was composed by general partners, the general partner shall bear unlimited joint and several liability for the debts of the partnership enterprise.
The limited liability partnership enterprises was composed by general partners and limited partners. The general partner shall bear unlimited joint and several liability for the debts of the partnership enterprise, but the limited partner should be responsible for the company to the extent of the capital contribution they have paid. A limited liability partnership shall be formed by not less than two but not more than fifty partners, unless otherwise provided for by law; and it must have one general partner.
Exclusively state-owned companies, state-owned enterprises, listed companies and public institutions or social organizations of public welfare may not become general partners. Partnership enterprises shall not use words such as "limited" or "limited liability" in their company names, but must indicate “general partnership “, “special general partnership” or "limited liability partnership" in their company names.
All partners shall enjoy equal right in the management of partnership affairs. And the partners could assign one or more partners as managing partner to execute the partnership affairs on behalf of the partnership enterprise according to partnership agreement or all partners’ decision. After assigned managing partners, other partners should not execute the partnership affairs, but having right to supervise their performance. A limited partner shall not be a managing partner.
Capital Contribution of the partnership enterprise:
A partner may make capital contribution in cash, tangible goods, land use rights, intellectual property, or other proprietary rights, and all need to make assets appraisal by agreed appraisal agency for the different capital types. If partner contribute his capital with labor service, the appraisal method should be decided through all partners’ discussion and specified in partnership agreement.
A partner may not engage in any business in competition with the business of the partnership either on his own, or in cooperation with others. Partners shall not trade with their partnership enterprise except otherwise agreed upon in the partnership agreement or with the consent of all the partners.
Partnership Enterprises Property:
All the capital contributions made by the partners, the incomes derived, and other property lawfully obtained, in the name of the partnership constitute the property of the partnership. Prior to liquidation of a partnership, no partner may request to divide the property of the partnership, unless otherwise provided for in this Law. If any partner would transfer all or part of his property share to non-partners, unanimous consent by all the partners shall be required. The other partners shall, under the same condition, enjoy priority in obtaining the assignment.
Profit distribution of the partnership:
The profits or losses of a partnership shall be distributed among or borne by the partners according to the partnership agreement. If it was not prescribed or not clear by the partnership agreement, which should be decided by the all partners after consultation.
If consultation fails, the partners distribute the profits in accordance with the actually paid capital with capital contribution ratio; if cannot confirm the capital contribution ratio, it should be shared by the partners through average allocation.
A limited liability partnership shall not distribute all the profits to part of the partners, unless otherwise stipulated in the partnership agreement.
Taxes of the Partnership Enterprise:
A legal person may choose to settle taxes on operating and other income with the tax authority where the partnership is registered, or with the tax authority of where the partner is located. The Partnership Enterprise need to pay income tax only, no others. It is the main difference among the Partnership Enterprise and WOFE, China-Foreign Joint Venture Company.
A partnership agreement shall be lawfully concluded, in written form, on the basis of agreement reached by all the partners through consultation, to define each partner’s rights and obligations. It should specify below items:
1) The company name and operation location of the partnership enterprise;
2) The aim of partnership and its business scope;
3) The name, address of the partners;
4) The form, amount and time limit for contribution;
5) The profits or losses distribution
6) Execute the partnership affairs
7) Join in or left the partnership enterprise;
8) Dispute resolution;
9) The dissolution and liquidation of the partnership enterprise;
10)Responsibility for breach of contract
If you want to setup a Partnership Enterprise, the most important thing is to find a professional agency who can support no only for the registration process, but also for taxes and the following maintenance.Please feel free to contact us for more details, we could guide you to registered your Partnership Enterprise in legal way without any trouble.