According to Decree No. 732 of the State Council of the People's Republic of China dated on November 29, 2020, the State Council has sorted out the administrative regulations inconsistent with the Foreign Investment Law of the People's Republic of China in order to implement the Foreign Investment Law.
The Measures for the Administration of the Establishment of Partnership Enterprises by Foreign Enterprises or Individuals in China has been abolished.
After the implementation of the Foreign Investment Law of the People's Republic of China, the Foreign Investment Law, the Partnership Law, the relevant laws and administrative regulations on commercial registration shall be uniformly applied to the establishment of partnerships by foreign investors in China, and there is no need to maintain separate administrative measures.
Partnership enterprises refer to general partnerships and limited partnerships established in China by natural persons, legal persons and other organizations in accordance with this Law.
The types of Partnership enterprises:
A. General partnership (including special general partnership)
B. limited partnership
A general partnership shall consist of general partners who are jointly and severally liable for the debts of the partnership. Where the partnership law has special provisions on the forms of liability of the general partner, such provisions shall prevail.
A limited partnership shall consist of general partners and limited partners. The general partner shall bear unlimited joint and several liability for the debts of the partnership, and the limited partner shall be liable for the debts of the partnership up to the amount of his or her subscribed capital contribution. A limited partnership shall be established by no less than two but no more than 50 partners. A limited partnership shall have at least one general partner.
However, where there are special provisions in this Law on the forms of liability borne by general partners, those provisions shall prevail.
But wholly state-owned company, state-owned enterprise, listed company, public welfare institution or social organization may not become a general partner.
For income tax purposes, the general partners of a limited partnership are treated identically to the partners of a general partnership.
Where a limited partner becomes a general partner, he shall bear unlimited joint and several liability for the debts the partnership incurs during the period he is a limited partner.
Where a general partner becomes a limited partner, he shall bear unlimited joint and several liability for the debts the partnership incurs during the period he is a general partner.
The partnership agreement shall be concluded in written by consensus among all partners in accordance with the law.
The conclusion of the partnership agreement and establishment of the partnership enterprise shall follow the principles of voluntariness, equality, fairness, honesty and good faith.
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.
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.
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 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:
The income from production and business operation of the partnership, shall be paid taxes separately by the partners in accordance with the relevant tax regulations.