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
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
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.
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