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.
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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]
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]
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.
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]
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 very similar to limited liability partnership in America and Europe.
A partnerhips 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:
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]
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]
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]
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]
The partners shall pay their respective share of the partnership income.[23]
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