Partnership (China)
A partnership in the People's Republic of China is a business entity governed by the Partnership Enterprise Law[1] passed by the Standing Committee of the National People's Congress 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[edit]
From 1368 to 1911, partnerships with distributive shares were the principal form of a business entity that investors ran coal mines.[2]
In the modern era, most enterprises were partnerships in the form of general partnerships levying unlimited liability on the partners.[3] In 1933, 41% of factories were run by partnerships and 20% were sole proprietorships.[4] After the end of the 1950s centralization of the economy caused the partnership form to vanish for nearly 30 years.[5] In the 1980s partnerships returned with different names to avoid the sensitive label of private ownership.[6]
On 1 June 2007, the Partnership Enterprise Law came into force and established partnerships as a legal business entity.[7]
Partnership enterprise[edit]
The term partnership enterprise refers to general partnerships and limited partnerships which may be established within China by natural persons, legal persons and other organizations.[8] A state-funded company, state-owned company, listed company, public welfare-oriented public institution or social organization may not become a general partner of a limited partnership.[9]
General partnership[edit]
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.[8] the general partners share unlimited liabilities for the debt of the partnership.
Limited partnership[edit]
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.[8]
Special general partnership[edit]
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.[10] It is intended as the preferred form of organization for law and accounting firms.[11]
Establishment[edit]
A partnership requires a written agreement between the partners.[12] This written agreement must be submitted to the business registration government body along with the identity of the partners.[13]
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.[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.[15]
Liabilities[edit]
A partnership must pay all its debts with property contributed to the partnership by the partners.[16]
If the partnership is a general partnership then the partners bear joint and several liability.[17]
A limited partner may not conclude partnership operations nor may such a partner represent the partnership to 3rd parties.[18]
Capital contributions[edit]
A partner may contribute capital to the partnership to garner a share of the partnership's profits or losses.[19] 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.[20]
If the partnership is a limited partnership, then the limited partners may not make capital contributions with labor services.[21]
Distributions[edit]
The default distribution scheme of profits or losses follows the proportion to capital contributions made by the partners.[22] However, the distribution scheme may follow an informal negotiated agreement or abide by scheme adopted in the partnership agreement.[23] If the proportions of capital contributions cannot be discerned, then the profits or losses will be distributed equally by the partners.[24]
The partnership agreement may not distribute all losses or all profits to just one or a group of partners within the partnership.[25]
Taxation[edit]
The partners shall pay tax on their respective share of the partnership income.[26]
Procedures[edit]
The required documents and procedures of partnership enterprise in China[27]
References[edit]
- ^ "Order of the President of the People's Republic of China" (PDF). Archived from the original (PDF) on 10 September 2008.
- ^ 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.
- ^ 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.
- ^ 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.
- ^ 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.
- ^ 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.
- ^ Partnership Enterprise Law Archived 2008-09-10 at the Wayback Machine
- ^ a b c Partnership Enterprise Law, Chapter 1, article2 Archived 2008-09-10 at the Wayback Machine
- ^ Partnership Enterprise Law, Chapter 1, article 3 Archived 2008-09-10 at the Wayback Machine
- ^ Partnership Enterprise Law, Chapter II, section 6, article 55 Archived 2008-09-10 at the Wayback Machine
- ^ "Limited Liability Partnership in China - A Long Way Forward". ResearchGate. Retrieved 2022-04-07.
- ^ Partnership Enterprise Law,Chapter 1, article 4 Archived 2008-09-10 at the Wayback Machine
- ^ Partnership Enterprise Law,Chapter 1, article 9 Archived 2008-09-10 at the Wayback Machine
- ^ Partnership Enterprise Law,Chapter II, section 1, article 14 Archived 2008-09-10 at the Wayback Machine
- ^ Partnership Enterprise Law, Chapter III, article 61 Archived 2008-09-10 at the Wayback Machine
- ^ Partnership Enterprise Law, Chapter II, section 4, article 38 Archived 2008-09-10 at the Wayback Machine
- ^ Partnership Enterprise Law, Chapter II, section 4, article 39 Archived 2008-09-10 at the Wayback Machine
- ^ Partnership Enterprise Law, Chapter III, article 68 Archived 2008-09-10 at the Wayback Machine
- ^ "Law of the People's Republic of China on Partnerships". english.www.gov.cn. Retrieved 2022-04-07.
- ^ Partnership Enterprise Law,Chapter II, section 1, article 16 Archived 2008-09-10 at the Wayback Machine
- ^ Partnership Enterprise Law, Chapter III, article 64 Archived 2008-09-10 at the Wayback Machine
- ^ Partnership Enterprise Law,Chapter II, section 3, article 33 Archived 2008-09-10 at the Wayback Machine
- ^ Partnership Enterprise Law,Chapter II, section 3, article 33 Archived 2008-09-10 at the Wayback Machine
- ^ Partnership Enterprise Law,Chapter II, section 3, article 33 Archived 2008-09-10 at the Wayback Machine
- ^ Partnership Enterprise Law,Chapter II, section 3, article 33 Archived 2008-09-10 at the Wayback Machine
- ^ Partnership Enterprise Law,Chapter 1, article 6 Archived 2008-09-10 at the Wayback Machine
- ^ "China FIPE: Partnership Enterprise Formation: Shanghai | Beijing | Shenzhen | Hangzhou". www.pathtochina.com. Retrieved 2022-04-07.