A partnership in the

People's Republic of China China, officially the People's Republic of China (PRC), is a country in East Asia. With population of China, a population exceeding 1.4 billion, it is the list of countries by population (United Nations), second-most populous country after ...

is a

business entity In law, a legal person is any person or legal entity that can do the things a human person is usually able to do in law – such as enter into contracts, lawsuit, sue and be sued, ownership, own property, and so on. The reason for the term "''le ...

governed by the Partnership Enterprise Law passed by the

Standing Committee of the National People's Congress The Standing Committee of the National People's Congress (NPCSC) is the permanent body of the National People's Congress (NPC), the national legislature of the People's Republic of China. It exercises the powers of the NPC when it is not in s ...

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

From 1368 to 1911, partnerships with distributive shares were the principal form of a business entity that

investor An investor is a person who allocates financial capital with the expectation of a future Return on capital, return (profit) or to gain an advantage (interest). Through this allocated capital the investor usually purchases some species of pr ...

s ran

coal mine Coal mining is the process of resource extraction, extracting coal from the ground or from a mine. Coal is valued for its Energy value of coal, energy content and since the 1880s has been widely used to Electricity generation, generate electr ...

s. In the modern era, most enterprises were partnerships in the form of general partnerships levying unlimited liability on the partners.Fang Liufang; Xia Yuantao; Sang Binxue; Danian Zhang Law and Contemporary Problems, Vol. 52, No. 3, The Emerging Framework of Chinese Civil Law: art 2 (Summer, 1989), pp. 43-67, 46. In 1933, 41% of

factories A factory, manufacturing plant or production plant is an industrial facility, often a complex consisting of several buildings filled with machinery, where workers manufacture items or operate machines which process each item into another. Th ...

were run by partnerships and 20% were

sole proprietorship 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. ...

s. After the end of the 1950s centralization of the economy caused the partnership form to vanish for nearly 30 years. In the 1980s partnerships returned with different names to avoid the sensitive label of

private ownership Private property is a legal designation for the ownership of property by non-governmental Capacity (law), legal entities. Private property is distinguishable from public property, which is owned by a state entity, and from Collective ownership ...

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

Partnership enterprise

The term partnership enterprise refers to general partnerships and

limited 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 partnership ...

s which may be established within China by

natural person In jurisprudence, a natural person (also physical person in some Commonwealth countries, or natural entity) is a person (in legal meaning, i.e., one who has its own legal personality) that is an individual human being, distinguished from the br ...

legal person In law, a legal person is any person or legal entity that can do the things a human person is usually able to do in law – such as enter into contracts, lawsuit, sue and be sued, ownership, own property, and so on. The reason for the term "''le ...

s and other organizations.Partnership Enterprise Law, Chapter 1, article2
A state-funded company,

state-owned company A state-owned enterprise (SOE) is a business entity created or owned by a national or local government, either through an executive order or legislation. SOEs aim to generate profit for the government, prevent private sector monopolies, provide goo ...

listed company A public company is a company whose ownership is organized via shares of stock which are intended to be freely traded on a stock exchange or in over-the-counter markets. A public (publicly traded) company can be listed on a stock exchange ( ...

, public welfare-oriented public institution or

social organization In sociology, a social organization is a pattern of relationships between and among individuals and groups. Characteristics of social organization can include qualities such as sexual composition, spatiotemporal cohesion, leadership, struc ...

may not become a general partner of a limited partnership.

General partnership

A general partnership ( zh, 普通合伙) may be formed by general partners, who bear unlimited

joint and several liability Where two or more persons are liable in respect of the same liability, in most common law legal systems they may either be: * severally liable, or * jointly liable, or * jointly and severally liable. Several liability In several or proportionat ...

for the

debts Debt is an obligation that requires one party, the debtor, to pay money Loan, borrowed or otherwise withheld from another party, the creditor. Debt may be owed by a sovereign state or country, local government, company, or an individual. Co ...

of the partnership.

Limited partnership

( zh, 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.

Special general partnership

A special general partnership ( zh, 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. It is intended as the preferred form of organization for law and accounting firms.

Establishment

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

Liabilities

A partnership must pay all its debts with property contributed to the partnership by the partners. If the partnership is a general partnership then the partners bear joint and several liability. A limited partner may not conclude partnership operations nor may such a partner represent the partnership to 3rd parties.

Capital contributions

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 Money is any item or verifiable record that is generally accepted as payment for goods and services and repayment of debts, such as taxes, in a particular country or socio-economic context. The primary functions which distinguish money are: m ...

intellectual property Intellectual property (IP) is a category of property that includes intangible creations of the human intellect. There are many types of intellectual property, and some countries recognize more than others. The best-known types are patents, co ...

right,

land use Land use is an umbrella term to describe what happens on a parcel of land. It concerns the benefits derived from using the land, and also the land management actions that humans carry out there. The following categories are used for land use: fo ...

right or other properties, or

labor Labour or labor may refer to: * Childbirth, the delivery of a baby * Labour (human activity), or work ** Manual labour, physical work ** Wage labour, a socioeconomic relationship between a worker and an employer ** Organized labour and the labour ...

services at a valuation determined by agreement among the partners. If the partnership is a limited partnership, then the limited partners may not make capital contributions with labor services.

Distributions

The default distribution scheme of profits or losses follows the proportion to capital contributions made by the partners. However, the distribution scheme may follow an informal negotiated agreement or abide by scheme adopted in the partnership agreement. If the proportions of capital contributions cannot be discerned, then the profits or losses will be distributed equally by the partners. The partnership agreement may not distribute all losses or all profits to just one or a group of partners within the partnership.

Taxation

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

Procedures

The required documents and procedures of partnership enterprise in China

References

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