On 25 November 2009, the State Council announced the Establishment of Partnership Enterprises in China by Foreign Enterprises and Individuals. The Measures will take effect from 1 March 2010.
Sino-foreign joint venture enterprises, Sino-foreign cooperative enterprises and wholly foreign-owned enterprises are the three forms of investment permitted under China’s current foreign investment legislation. Foreign-invested partnerships constitute a new form of foreign investment distinct from these forms.
The Measures were enacted as a set of administrative rules pursuant to the PRC Partnership Law of 2006 for the purpose of “permitting foreign companies or individuals to invest in China by way of partnership” (Article 1). Therefore, foreign-invested partnerships are to be a form of foreign investment governed by the PRC Partnership Law as well as other relevant laws, administrative regulations and rules, and must conform to relevant foreign investment industrial policies (Article 3 of the Measures).
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Types of foreign-invested partnership
Articles 2 and 12 of the Measures describe three types of partnership:
- wholly foreign-owned partnerships formed by two or more foreign companies or individuals;
- Sino-foreign joint venture partnerships established by foreign companies or individuals together with Chinese natural persons, legal persons and other organizations; and
- foreign-merged or acquired Chinese partnerships created by Chinese natural persons, legal persons and other organizations. Foreign companies or individuals become partners by joining these Chinese partnerships or being assigned a share of the property of such partnerships.
MOFCOM approval not required
According to Articles 5 and 9 of the Measures, a Sino-foreign partnership may directly be registered with the local administration of industry and commerce (AIC), without the need for approval by the competent local department of the Ministry of Commerce (MOFCOM). However, foreign investors should submit to the local AIC a document explaining how their proposed partnership conforms with foreign investment industrial policies. The local AIC is required to notify the competent local department of MOFCOM of information about the registration of the established partnership, and any change in or cancellation of such registration.
No express provisions for venture capital or private equity partnerships
Article 14 of the Measures states that “if there are other rules governing the formation of partnerships in China by foreign enterprises or individuals whose principal business is investment, those rules shall be followed”. Please turn to In Focus on page 37 for a detailed analysis of how the Measures apply to the private equity and venture capital sector.
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