Partnership (China)

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A partnership in the People's Republic of China is a business entity governed by the 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[edit]

From 1368 to 1911, partnerships with distributive shares were the principal form of a business entity that investors ran coal mines.[1]

In the modern era, most enterprises were partnerships in the form of general partnerships levying unlimited liability on the partners.[2] In 1933, 41% of factories were run by partnerships and 20% were sole proprietorships.[3] After the end of the 1950s centralization of the economy caused the partnership form to vanish for nearly 30 years.[4] In the 1980s partnerships returned with different names to avoid the sensitive label of private ownership.[5]

On 1 June 2007, the Partnership Enterprise Law came into force and established partnerships as a legal business entity.[6]

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.[7] 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.[8]

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.[7] 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.[7]

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.[9] It is intended as the preferred form of organization for law and accounting firms.

Establishment[edit]

A partnership requires a written agreement between the partners.[10] This written agreement must be submitted to the business registration government body along with the identity of the partners.[11]

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.[12]

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.[13]

Liabilities[edit]

A partnership must pay all its debts with property contributed to the partnership by the partners.[14]

If the partnership is a general partnership then the partners bear joint and several liability.[15]

A limited partner may not conclude partnership operations nor may such a partner represent the partnership to 3rd parties.[16]

Capital contributions[edit]

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.[17]

If the partnership is a limited partnership, then the limited partners may not make capital contributions with labor services.[18]

Distributions[edit]

The default distribution scheme of profits or losses follows the proportion to capital contributions made by the partners.[19] However, the distribution scheme may follow an informal negotiated agreement or abide by scheme adopted in the partnership agreement.[20] If the proportions of capital contributions cannot be discerned, then the profits or losses will be distributed equally by the partners.[21]

The partnership agreement may not distribute all losses or all profits to just one or a group of partners within the partnership.[22]

Taxation[edit]

The partners shall pay tax on their respective share of the partnership income.[23]



Procedures[edit]

The required documents and procedures of partnership enterprise in China[24]


Notes[edit]

  1. ^ 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.
  2. ^ 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.
  3. ^ 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.
  4. ^ 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.
  5. ^ 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.
  6. ^ Partnership Enterprise Law
  7. ^ a b c Partnership Enterprise Law, Chapter 1, article2
  8. ^ Partnership Enterprise Law, Chapter 1, article 3
  9. ^ Partnership Enterprise Law, Chapter II, section 6, article 55
  10. ^ Partnership Enterprise Law,Chapter 1, article 4
  11. ^ Partnership Enterprise Law,Chapter 1, article 9
  12. ^ Partnership Enterprise Law,Chapter II, section 1, article 14
  13. ^ Partnership Enterprise Law, Chapter III, article 61
  14. ^ Partnership Enterprise Law, Chapter II, section 4, article 38
  15. ^ Partnership Enterprise Law, Chapter II, section 4, article 39
  16. ^ Partnership Enterprise Law, Chapter III, article 68
  17. ^ Partnership Enterprise Law,Chapter II, section 1, article 16
  18. ^ Partnership Enterprise Law, Chapter III, article 64
  19. ^ Partnership Enterprise Law,Chapter II, section 3, article 33
  20. ^ Partnership Enterprise Law,Chapter II, section 3, article 33
  21. ^ Partnership Enterprise Law,Chapter II, section 3, article 33
  22. ^ Partnership Enterprise Law,Chapter II, section 3, article 33
  23. ^ Partnership Enterprise Law,Chapter 1, article 6
  24. ^ Partnership Enterprise establishment in China

See also[edit]