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Establishment of Partnership Enterprise by Foreign Enterprises or Individuals in China

Last Updated: April 17, 2021

Since March 1, 2010: Measures of Establishment of Foreign Invested Partnership Enterprises (FIPE) in China is taking effect. The regulation, which take effect since March 1, 2010, are known as the Administrative Measures for the Establishment of Partnership Enterprise in China by Foreign Enterprises or Individuals. There's no required minimum registered capital for a Foreign Invested Partnership Enterprise (FIPE) in Shanghai, Beijing, Shenzhen, Hangzhou and rest cities of China. Information provided below will guide you to:

In Mainland China, there are 4 modes of business presences for foreign investors: WFOE(65%), Representative Office(20%-), FIPE(10%+), Joint Venture(5%). FIPE becomes more and more popular among young entrepreneurs with their new start ups in China as it requires no registered capital but the FIPE still could hire people, collect payments, issue invoices, apply for work & residence in China freely. It's not a surprise that most people you meet in China may not know anything about FIPE as it's relative new and government is not promoting on this.

As roughly comparison between these 4 modes, check the Comparison Chart.

Foreign Invested Partnership Enterprise (FIPE)

 

About PtC's experience on FIPE establishment in China

We are among a very few companies capable of offering FIPE establishment in China.

In Shanghai: we helped our clients to establish the 2rd and 4th FIPE of Shanghai,

In Beijing: The 6th FIPE of Beijing

In Shenzhen: The 8th FIPE of Shenzhen

Introduction to FIPE

The Foreign Invested Partnership Enterprise (FIPE) is a unlimited liability business entity without minimum requirements on registered capital.

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.

Since June 1, 2007, Partnership Enterprise Law came into force and established partnerships as a legal business entity, Foreign Enterprises or Individuals establish Partnership Enterprise is not allowed only until March 1, 2010. Here's the Foreign Invested Partnership Enterprise Law[]

According to State Administration of Industry and Commerce (SAIC), From March 1, 2010- December 31, 2010, there were about 68 Foreign Invested Partnership Enterprise (FIPE) be established in China. The number of FIPE establishment in China is quite small for the first year, it is just because overseas investors are not familiar this type of business in China.

The term partnership enterprise refers to general partnerships and limited partnerships which may be established within China by individuals, legal persons and other organizations. 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

Investors of Partnership Enterprise

The Minimum number of partners should be 2, there's no requirements on the nationality of a Partner, thus it can be all foreign investors to form a FIPE or Foreign and Chinese partners mixed FIPE.

Different types of Partnership Enterprise

Following are different types of FIPE. Commonly,

1. General partnership Enterprise (GPE): A general partnership enterprise may be formed by general partners who bear unlimited joint and several liability for the debts of the partnership. The general partners share unlimited liabilities for the debt of the partnership.
2. Limited partnership enterprise (LPE): A limited partnership enterprise 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.
3. Special General Partnership enterprise (SGPE): A special general partnership enterprise 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 very similar to limited liability partnership in Europe and America.

Advantages of partnership enterprise

The advantages of establishing a FIPE , compared with other types of enterprises, include, but not limited to:

1. No requirements on minimum registered capital;
2. Less procedures comparing with Wholly Foreign Owned Enterprise or Joint Venture
3. Capability of converting RMB profits to US dollars for remittance to its parent company outside of China;
4. Foreign Enterprise or Individual is allowed to establish a Partnership Enterprise with Chinese individual (While Chinese individual is not allowed to have Joint Venture company with foreign investor)
5. The profit distribution of a FIPE could follow an informal negotiated agreement or abide by scheme adopted in the partnership agreement (While for LLC, profit distributions is according to the percentage of investment of shareholders)

Disadvantages of partnership enterprise

1. Unlimited liability; 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;
2. Limited business names options: Can't have business name with "Company" in it, eg, can't have name lie XYZ Co., or XYZ Co., Ltd. and could only choose names like: XYZ Firm(Partnership enterprise ), XYZ center (Partnership enterprise)
3. Property rights of partnership enterprise is difficult to be transferring to a third party as according to the Partnership Enterprise Law: the property rights of partnership transfer MUST be agreed by all partners in a PIPE;
4. China has not adopted Natural Person's Bankruptcy system, credibility of the partners would be hard to maintain if FIPE involves into a hard situation
5. As for trading business of a FIPE, it would be difficult for FIPE to get VAT status initially.

Capital contribution

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

Distribution

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.

 

GENERAL TAX INFORMATION

No corporate income tax required if partners are individuals. The individual partners shall pay their respective share of the partnership income. Corporate income tax applies if partners are companies.

 

PROFIT REPATRIATION

China Government allows Foreign Invested Partner Enterprises (FIPE) remit their profits out of the country and such remittances do not require the prior approval of the State Administration of Foreign Exchange (SAFE). Dividends cannot be distributed and repatriated to oversea if the losses of previous years have not been covered while dividends not distributed in previous years may be distributed together with those of the current year. Repatriating the Registered Capital to home countries is forbidden during the term of business operation.

TERMS AND TERMINATION

In China, terms of 15 to 30 years are typical for a FIPE. It is also possible to obtain extensions of the FIPE's duration.

SOCIAL SECURITY IN CHINA

A new rule on foreign employees’ social security in effect starting October 15, 2011. It is said that if a company hires a foreign employee, the company shall register this employee with the local social security authority within 30 days of the employee receiving their work permit.

 

More information about FIPE::

Contact Our Regional Partners in India (Mumbai, Delhi), Singapore, Malaysia (Kuala Lumpur), China (Beijing, Shenzhen, Guangzhou, Shanghai, Suzhou, Ningbo, Hangzhou or Hong Kong) for more details:

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