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Current Location: Home > Establishment Of Partnership Enterprise By Foreign

Establishment Of Partnership Enterprise By Foreign

Please refer to below information: 
Accounting Outsourcing Service

Brief Introduction of Foreign Invested Partnership Enterprise (FIPE)
Documents Required & Registration Procedures of Partnership Enterprise

With the development of China's achievements in economy and advance in science and technology, 4 type of business presences for foreign investors are emerged : WFOE (65%), Representative Office (20%), FIPE (10%), and Joint Venture (5%).  FIPE becomes more and more important among young entrepreneurs with their new beginning in China, for it requires no registered capital, but the FIPE still could employ 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 its relative new and government is not promoting on this.

Foreign Invested Partnership Enterprise (FIPE)

Introduction to FIPE:

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. 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 partnership formally as a legal business entity, Foreign Enterprises or Individuals establish Partnership Enterprise is not allowed only until March 1, 2010.

According to State Administration of Industry and Commerce (SAIC), From March 1, 2010- December 31, 2010, Approximately 68 Foreign Invested Partnership Enterprises (FIPE) were established in China. The number of FIPE establishment in China is quite small at the first year, since overseas investors are not familiar with this mode of business in China.

Investors of Partnership Enterprise:
The Minimum number of partners should be 2, there's no requirement 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:

Please refer to the following 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 liabilities for the partnership debts. The general partners share unlimited liabilities for the debt of the partnership.
2. Limited partnership enterprise (LPE): A limited partnership enterprise is the combination of general partners and limited partners where the limited partners bear the liabilities for the partnership's debts within the scope 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 and requiring professional knowledge and special skills. The structure shields of the 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:
Advantages in establishing a FIPE, which compared with other types of enterprises, include, but not limited to:
1. No requirements on minimum registration capital;
2. 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)
3. Simple procedures comparing with Wholly Foreign Owned Enterprise or Joint Venture
4. Capability of transfer RMB profits to US dollars for remittance to its parent company outside of China;
5. Foreign Enterprise or Individual is allowed to establish a Partnership Enterprise with Chinese individual (Note: While Chinese individual is not allowed to have Joint Venture company with foreign investor)

Disadvantages of Partnership Enterprise:
1. Limited business names options: Can't use business name with "Company" . For instance, ABC Co., or ABC Co., Ltd. were all totally prohibited. Besides, ABC Firm(Partnership enterprise ), ABC center (Partnership enterprise) were legally allowed.
2. Property rights of partnership enterprise is difficult to be transferring to a third party, according to the Partnership Enterprise Law, the property rights of partnership transfer must get the permission of all partners in a PIPE;
3. China has not adopted to Natural Person's Bankruptcy system, credibility of the partners would be hard to maintain if FIPE involves into a hard situation
4. As for trading business of a FIPE, it would be difficult for FIPE to get VAT status initially.
5. 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;

Capital contribution:
A partner may contribute capital to the partnership to get a share of the partnership's profits or losses. Capital contribution may include not only money, but intellectual property rights, land use right, 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.

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 the scheme adopted in the partnership agreement. If the proportions of capital contributions cannot be identified, 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 overseas 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.
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 takes into effect starting on 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.

Please refer to below information: 
Accounting Outsourcing Service

Brief Introduction of Foreign Invested Partnership Enterprise (FIPE)
Documents Required & Registration Procedures of Partnership Enterprise

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