On 25 November 2009, the State Council of the PRC promulgated the Measures on Administration of Establishment of Partnerships by Foreign Enterprises or Individuals in China ("Partnership Measures"), which became effective on 1 March 2010. A foreign-invested partnership ("FIP") as described in the Administration Measures refers to a partnership set up by at least two foreign enterprises or individuals, or one set up by foreign enterprises or individuals together with Chinese individuals, legal persons or other organisations. As explained by an official at the State Council's Office of Legislative Affairs, a foreign investor may also join an existing domestic partnership, which would then be con¬verted into an FIP.
The Partnership Measures are relatively short - they only con¬tain 16 articles. They require that an FIP complies with the PRC Partnership Enterprise Law, other related laws and regulations and industrial policies relating to foreign investment.
Unlike an FIE in China, which needs approval from the Ministry of Commerce or its local counterpart, setting up an FIP only requires registration with the competent administration for industry and commerce. This is a considerably simpler establishment proce¬dure.
Since limited partnerships are the main form for private equity funds outside China, the Partnership Measures have attracted much attention from foreign investors interested in establishing local venture capital funds. However, Article 14 of the Partner¬ship Measures notes that other national provisions prevail when they address partnerships established within China by foreign enterprises or individuals for the primary purpose of investment. Such provisions leave ample space for further legislation in this respect. As explained by the official at the State Council's Office of Legislative Affairs, there is a lack of relevant practical expe¬rience in terms of private funds and venture capital enterprises. Such explanation seems to indicate that this area awaits further guidance.
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.
