A partnership in the

People's Republic of China China, officially the People's Republic of China (PRC), is a country in East Asia. It is the world's List of countries and dependencies by population, most populous country, with a Population of China, population exceeding 1.4 billion, slig ...

is a

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

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 of the People's Republic of China (NPCSC) is the permanent body of the National People's Congress (NPC) of the People's Republic of China (PRC), which is the highest organ of state po ...

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 (profit) or to gain an advantage (interest). Through this allocated capital most of the time the investor purchases some species of property. Type ...

s ran

coal mine Coal mining is the process of extracting coal from the ground. Coal is valued for its energy content and since the 1880s has been widely used to generate electricity. Steel and cement industries use coal as a fuel for extraction of iron from ...

s. In the modern era, most enterprises were partnerships in the form of

general partnership 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: *Must be created by agreement, proof of existence and estoppel. ...

s levying

unlimited liability An unlimited company or private unlimited company is a hybrid company (corporation) incorporated with or without a share capital (and similar to its limited company counterpart) but where the legal liability of the members or shareholders is not ...

on the partners. In 1933, 41% of

factories A factory, manufacturing plant or a 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. T ...

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 one person and in which there is no legal distinction between the owner and the business entity. A sol ...

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 legal entities. Private property is distinguishable from public property and personal property, which is owned by a state entity, and from collective or ...

. 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 form of partnership similar to a general partnership except that while a general partnership must have at least two general partners (GPs), a limited partnership must have at least one GP and at least one limited ...

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 b ...

legal person In law, a legal person is any person or 'thing' (less ambiguously, any legal entity) that can do the things a human person is usually able to do in law – such as enter into contracts, sue and be sued, own property, and so on. The reason f ...

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

state-owned company A state-owned enterprise (SOE) is a government entity which is established or nationalised by the ''national government'' or ''provincial government'' by an executive order or an act of legislation in order to earn profit for the governmen ...

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 ( lis ...

, public welfare-oriented public institution or

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

may not become a

general partner 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 an ...

of a limited partnership.

General partnership

(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: * jointly liable, or * severally liable, or * jointly and severally liable. Joint liability If parties have joint liabili ...

for the debts of the partnership. the general partners share unlimited liabilities for the debt of the partnership.

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.

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. 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 ar ...

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 involves the management and modification of natural environment or wilderness into built environment such as settlements and semi-natural habitats such as arable fields, pastures, and managed woods. Land use by humans has a long ...

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 la ...

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

{{reflist