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SHANGHAI, Dec. 3 – China will soon allow foreign investors the option to invest in the mainland via partnership firms beginning in March next year.
This will enable investors to set up contract-based partnership firms either on their own or with a local partner. A partnership firm has the advantage of flexibility during set up and in management, legal structure and capital structure as opposed to a joint venture which can be quite rigid.
Currently only Chinese investors with onshore renminbi funds are allowed to set up partnership firms. A foreign partnership firm also eliminates the need to get approval from the Ministry of Commerce and will only require approval from local authorities (except in industries and sectors that require special approval).
Partnership regulations require investments to be in the form of fully convertible currency, or renminbi. The new regulations are aimed at making the FDI process simpler to attract more investment. In line with its current foreign investment policies, the central government is especially interested in encouraging foreign investors with advanced technology and management experience to set up partnerships.
Foreign direct investment in the country declined during the year as a consequence of the global financial crisis with FDI rates dropping by 12.6 percent.
For more information on foreign direct investment vehicles in China, please contact Dezan Shira & Associates at info@dezshira.com.
Thanks for the update. So, does this mean that now foreign companies now have the options of setting up RO, WOFE, JV, or Partnership? Can foreign companies own a larger share of over 50%?
Yes, a partnership is now another option of doing business in the country. Under the new regulation, foreign investors would be permitted to set up limited partnerships in China by themselves or with local partners.
Regards,
This is very interesting.
What does limited partnership mean in this context?
Is there no need for a partner?
What is the difference to a WFOE?
Thank you in advance and
best regards
B. Schorr
This is a very special entity under Chinese laws. “limited partnership” means some partners are limited liable for the liabilities to this partnership company. In a partnership company, the partnership can be partially Chinese and partially foreign or can be 100 percent foreign or 100 percent Chinese. So having a Chinese partner is not necessary.
In a WFOE, shareholders’ liabilities to the WFOE are limited to the shareholders’ capital contribution. However, in a partnership company, the shareholders’ liabilities are same as the partnership company and without limitation to their investment in this partnership company, which means the investors shall use all their assets to be liable for the partnership company.
Even though a partnership company can have limited partnership investors, the limited partnership investors are not allowed to manage or represent the partnership company. In a partnership company, at least one partner is unlimited liability partner.
Regards,