Sept. 11 – China’s Ministry of Commerce is finalizing the details of a draft regulation that is expected to be officially released by Beijing soon that allows foreign entities to apply for business licenses as a foreign invested partnership (FIP).

The regulation is relevant for foreign fund managers because it provides the closest legal entity in terms of structure for most international and offshore funds.

If the regulation is implemented, the measures would permit an approved foreign investor to directly form a China limited liability partnership (LLP) as a general partner or to directly invest in a PRC LLP as a limited partner.

It remains unclear whether or not such applications may be approved at a local level or state level by the Ministry of Commerce. However, FIPs remain restricted in participating in such industries as telecommunications and large-scale land development.

The regulations further dictate that two or more foreign investors may establish a PRC partnership, a wholly foreign-owned FIP, or a PRC partnership together with Chinese companies or individuals also considered a local-foreign joint venture type FIP.

The draft measures do not impose any particular special investment requirement on the foreign partner other than they must have a good business reputation and have no legal record of violation of law in the three years preceding the application. No minimum partnership capital or contribution time line has been identified.

For further information concerning FIPs, email Richard Hoffmann, senior associate for Dezan Shira & Associates in Beijing, at beijing@dezshira.com.