With the effectiveness of the Measures for the Administration of the Establishment of Partnerships in China by Foreign Enterprises or Individuals ("FIP Measures") and the Administration Provisions on Registration of Foreign-Invested Partnership Enterprises ("Registration Provisions") on 1 March 2010, a new form of foreign investment, the foreign-invested partnership ("FIP") has become a reality in China. The Registration Provisions, as the first promulgated implementing rules of the FIP Measures issued by the State Administration of Industry and Commerce ("SAIC"), provide clear instructions on the registration of FIPs.
Types of FIPs
Pursuant to the Registration Provisions, the types of FIPs are the same as those of domestic partnerships, which are the (foreign-invested) general partnership (including special general partnership), and the limited liability partnership. The type of FIP must be clearly indicated in its business license.
Establishment upon registration
The Registration Provisions identify the registration requirements for an FIP. Although an approval process is no longer required, FIPs are still subject to the same restrictions on the scope of business that apply to all foreign investors. The FIP may not engage in an industry that: is categorised as "prohibited"; is restricted to Sino-foreign equity or cooperative joint ventures ("JV"); only allows JVs controlled by the Chinese party; or is subject to a foreign investment ratio that is otherwise limited under the Foreign Investment Guidance Catalogue. In regular cases, upon submission of all the required documents, the competent AIC should, if possible, register the FIP on the same day or, if not, within 20 days.
The capitalisation of FIPs is more flexible than the other forms of foreign direct investment. Both the FIP Measures and the Registration Provisions remain silent on the minimum partnership capital and the contribution timeframe. In addition to using foreign exchange or legally acquired RMB as stipulated in the FIP Measures, the Registration Provisions further permit contribution in kind by both domestic and foreign investors and explicitly provide that foreign general partners may contribute in the form of labour. Therefore, it appears that in this area foreign and Chinese investors receive the same legal treatment. The Registration Provisions also provide guidelines on certain practical aspects of making RMB contributions.
The first foreign-invested equity investment partnership enterprise was established in Shanghai on 3 May 2010, marking a great breakthrough in the Chinese PE industry. The FIP Measures do not state clearly on the setting-up procedures of FIPs that mainly engage in the investment business ("Investment FIPs"), but the Registration Provisions provide the following general terms that apply to an Investment FIP:
- the competent registration authority is the provincial-level AIC;
- its investment activities are subject to national laws, rules and regulations applicable to foreign investment; and
- an investment project that requires project approval is subject to the relevant legal provisions.
The FIP Measures only lay down general principles governing FIPs. We expect that other authorities will soon follow the SAIC in issuing other implementing rules that address practical issues concerning the structure and operation of FIPs. With the distinctive features such as streamlined official formalities and flexible internal management, and as a prevalent vehicle for onshore equity fund, FIPs would certainly be an easier and more desirable option for certain foreign investments in China.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.