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 [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.

Contents

History

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. [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

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

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

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

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. [10]

Establishment

A partnership requires a written agreement between the partners. [11] This written agreement must be submitted to the business registration government body along with the identity of the partners. [12]

A partnership must abide by the following requirements:

Should it be a general partnership or limited partnership then that shall be in its name. [13]

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. [14]

Liabilities

A partnership must pay all its debts with property contributed to the partnership by the partners. [15]

If the partnership is a general partnership then the partners bear joint and several liability. [16]

A limited partner may not conclude partnership operations nor may such a partner represent the partnership to 3rd parties. [17]

Capital contributions

A partner may contribute capital to the partnership to garner a share of the partnership's profits or losses. [18] 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. [19]

If the partnership is a limited partnership, then the limited partners may not make capital contributions with labor services. [20]

Distributions

The default distribution scheme of profits or losses follows the proportion to capital contributions made by the partners. [21] However, the distribution scheme may follow an informal negotiated agreement or abide by scheme adopted in the partnership agreement. [22] If the proportions of capital contributions cannot be discerned, then the profits or losses will be distributed equally by the partners. [23]

The partnership agreement may not distribute all losses or all profits to just one or a group of partners within the partnership. [24]

Taxation

The partners shall pay tax on their respective share of the partnership income. [25]

Procedures

The required documents and procedures of partnership enterprise in China [26]

Related Research Articles

Business is the practice of making one's living or making money by producing or buying and selling products. It is also "any activity or enterprise entered into for profit."

<span class="mw-page-title-main">GmbH</span> "Company with limited liability" in German-speaking countries

Gesellschaft mit beschränkter Haftung, literally 'company with limited liability', is a type of legal entity in German-speaking countries. It is equivalent to a société à responsabilité limitée (Sàrl) in the French-speaking part of Switzerland and to a Società a Garanzia Limitata (Sagl) in the Italian-speaking part.

<span class="mw-page-title-main">Partnership</span> Business organization in which parties cooperate in an endeavor

A partnership is an agreement where parties agree to cooperate to advance their mutual interests. The partners in a partnership may be individuals, businesses, interest-based organizations, schools, governments or combinations. Organizations may partner to increase the likelihood of each achieving their mission and to amplify their reach. A partnership may result in issuing and holding equity or may be only governed by a contract.

<span class="mw-page-title-main">Limited liability company</span> US form of a private limited company

A limited liability company (LLC) is the United States-specific form of a private limited company. It is a business structure that can combine the pass-through taxation of a partnership or sole proprietorship with the limited liability of a corporation. An LLC is not a corporation under the laws of every state; it is a legal form of a company that provides limited liability to its owners in many jurisdictions. LLCs are well known for the flexibility that they provide to business owners; depending on the situation, an LLC may elect to use corporate tax rules instead of being treated as a partnership, and, under certain circumstances, LLCs may be organized as not-for-profit. In certain U.S. states, businesses that provide professional services requiring a state professional license, such as legal or medical services, may not be allowed to form an LLC but may be required to form a similar entity called a professional limited liability company (PLLC).

A joint venture (JV) is a business entity created by two or more parties, generally characterized by shared ownership, shared returns and risks, and shared governance. Companies typically pursue joint ventures for one of four reasons: to access a new market, particularly emerging market; to gain scale efficiencies by combining assets and operations; to share risk for major investments or projects; or to access skills and capabilities.

<span class="mw-page-title-main">Limited liability partnership</span> Partnership in which some or all partners have limited liabilities

A limited liability partnership (LLP) is a partnership in which some or all partners have limited liabilities. It therefore can exhibit aspects of both partnerships and corporations. In an LLP, each partner is not responsible or liable for another partner's misconduct or negligence. This distinguishes an LLP from a traditional partnership under the UK Partnership Act 1890, in which each partner has joint liability. In an LLP, some or all partners have a form of limited similar to that of the shareholders of a corporation. Depending on the jurisdiction, however, the limited liability may extend only to the negligence or misconduct of the other partners, and the partners may be personally liable for other liabilities of the firm or partners.

<span class="mw-page-title-main">Sole proprietorship</span> Business legally synonymous with its owner

A sole proprietorship, also known as a sole tradership, individual entrepreneurship or proprietorship, is a type of enterprise owned and run by only one person and in which there is no legal distinction between the owner and the business entity. A sole trader does not necessarily work alone and may employ other people.

<span class="mw-page-title-main">Private limited company</span> Type of company used in many jurisdictions

A private limited company is any type of business entity in "private" ownership used in many jurisdictions, in contrast to a publicly listed company, with some differences from country to country. Examples include the LLC in the United States, private company limited by shares in the United Kingdom, GmbH in Germany and Austria, Besloten vennootschap in The Netherlands, société à responsabilité limitée in France, and sociedad de responsabilidad limitada in the Spanish-speaking world. The benefit of having a private limited company is that there is limited liability.

A privately held company is a company whose shares and related rights or obligations are not offered for public subscription or publicly negotiated in their respective listed markets. Instead, the company's stock is offered, owned, traded or exchanged privately, also known as 'over-the-counter'. Related terms are unlisted company, unquoted company and private equity.

<span class="mw-page-title-main">Limited partnership</span> Form of partnership

A limited partnership (LP) is a type of partnership with general partners who have a right to manage the business and limited partners who have no right to manage the business but have only limited liability for its debts. Limited partnerships are distinct from limited liability partnerships, in which all partners have limited liability.

The rules governing partnership taxation, for purposes of the U.S. Federal income tax, are codified according to Subchapter K of Chapter 1 of the U.S. Internal Revenue Code. Partnerships are "flow-through" entities. Flow-through taxation means that the entity does not pay taxes on its income. Instead, the owners of the entity pay tax on their "distributive share" of the entity's taxable income, even if no funds are distributed by the partnership to the owners. Federal tax law permits the owners of the entity to agree how the income of the entity will be allocated among them, but requires that this allocation reflect the economic reality of their business arrangement, as tested under complicated rules.

<span class="mw-page-title-main">General partnership</span> Basic form of partnership under common law

A general partnership, the basic form of partnership under common law, is in most countries an association of persons or an unincorporated company with the following major features:

<i>Kommanditgesellschaft</i> German name for a limited partnership business entity

A Kommanditgesellschaft is the German name for a limited partnership business entity and is used in German, Belgian, Dutch, Austrian, and some other European legal systems. In Japan, it is called a gōshi gaisha. Its name derives from the commenda, an early Italian medieval form of limited partnership. In Indonesia, it is legally called commanditaire vennootschap (CV) or Persekutuan Komanditer, derived from colonial Dutch administration.

In the United States, a master limited partnership (MLP) or publicly traded partnership (PTP) is a publicly traded entity taxed as a partnership. It combines the tax benefits of a partnership with the liquidity of publicly traded securities.

There are many ways in which a business may be owned under the legal system of England and Wales.

General partner is a person who joins with at least one other person to form a business. A general partner has responsibility for the actions of the business, can legally bind the business and is personally liable for all the partnership's debts and obligations.

United Kingdom partnership law concerns the way that partnerships are formed or governed within the United Kingdom. Depending upon where the partnership was formed, English law, Scots law or Northern Irish law may apply in addition to statutes that create a framework across the UK. Under Scots law a partnership is a distinct legal entity and can borrow money from a bank in the name of the partnership, while English law only allows borrowing in the names of individual partners. Partnerships are a form of business association, which arises automatically when people carry on business with a view to a profit. Partners are jointly and severally liable, just as they own the property in common.

An international joint venture (IJV) occurs when two businesses based in two or more countries form a partnership. A company that wants to explore international trade without taking on the full responsibilities of cross-border business transactions has the option of forming a joint venture with a foreign partner. International investors entering into a joint venture minimize the risk that comes with an outright acquisition of a business. In international business development, performing due diligence on the foreign country and the partner limits the risks involved in such a business transaction.

<span class="mw-page-title-main">Corporate law in Vietnam</span>

Corporate law in Vietnam was originally based on the French commercial law system. However, since Vietnam's independence in 1945, it has largely been influenced by the ruling Communist Party. Currently, the main sources of corporate law are the Law on Enterprises, the Law on Securities and the Law on Investment.

References

  1. "Order of the President of the People's Republic of China" (PDF). Archived from the original (PDF) on 10 September 2008.
  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, 44.
  3. 1 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.
  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 Archived 2008-09-10 at the Wayback Machine
  7. 1 2 3 Partnership Enterprise Law, Chapter 1, article2 Archived 2008-09-10 at the Wayback Machine
  8. Partnership Enterprise Law, Chapter 1, article 3 Archived 2008-09-10 at the Wayback Machine
  9. Partnership Enterprise Law, Chapter II, section 6, article 55 Archived 2008-09-10 at the Wayback Machine
  10. "Limited Liability Partnership in China - A Long Way Forward". ResearchGate. Retrieved 2022-04-07.
  11. Partnership Enterprise Law, Chapter 1, article 4 Archived 2008-09-10 at the Wayback Machine
  12. Partnership Enterprise Law, Chapter 1, article 9 Archived 2008-09-10 at the Wayback Machine
  13. Partnership Enterprise Law, Chapter II, section 1, article 14 Archived 2008-09-10 at the Wayback Machine
  14. Partnership Enterprise Law, Chapter III, article 61 Archived 2008-09-10 at the Wayback Machine
  15. Partnership Enterprise Law, Chapter II, section 4, article 38 Archived 2008-09-10 at the Wayback Machine
  16. Partnership Enterprise Law, Chapter II, section 4, article 39 Archived 2008-09-10 at the Wayback Machine
  17. Partnership Enterprise Law, Chapter III, article 68 Archived 2008-09-10 at the Wayback Machine
  18. "Law of the People's Republic of China on Partnerships". english.www.gov.cn. Retrieved 2022-04-07.
  19. Partnership Enterprise Law, Chapter II, section 1, article 16 Archived 2008-09-10 at the Wayback Machine
  20. Partnership Enterprise Law, Chapter III, article 64 Archived 2008-09-10 at the Wayback Machine
  21. Partnership Enterprise Law, Chapter II, section 3, article 33 Archived 2008-09-10 at the Wayback Machine
  22. Partnership Enterprise Law, Chapter II, section 3, article 33 Archived 2008-09-10 at the Wayback Machine
  23. Partnership Enterprise Law, Chapter II, section 3, article 33 Archived 2008-09-10 at the Wayback Machine
  24. Partnership Enterprise Law, Chapter II, section 3, article 33 Archived 2008-09-10 at the Wayback Machine
  25. Partnership Enterprise Law, Chapter 1, article 6 Archived 2008-09-10 at the Wayback Machine
  26. "China FIPE: Partnership Enterprise Formation: Shanghai | Beijing | Shenzhen | Hangzhou". www.pathtochina.com. Retrieved 2022-04-07.

See also