A new door to partnership is opened by the Chinese government to the foreign investors under this post-financial turmoil era in order to attract more foreign speculation and supply more employment. On November 25, 2009, the State Council of the Prc promulgated the Measures for the supervision on the preparation of Partnership firm by Foreign Enterprises or Individuals in China adopted at the 77th executive meeting of the State Council on August 19, 2009, which shall come into ensue as of March 1, 2010 ("the Foreign Partnership Measures"). The Foreign Partnership Measures is regarded as additional to the Partnership firm Law of the People's Republic of China ("the Partnership Law"), description 108 of which provides that the measures for the supervision on the preparation of partnership firm by foreign enterprises or individuals shall be formulated by the State Council. Therefore the Partnership Law is the basic law for foreign enterprises or individuals (collectively "foreign partners") to found the partnership firm in China ("foreign partnership").
The first attempt to formulate this kind of measures with the authorization of the Partnership Law can be tracked to January 2007 when the Ministry of manufactures of the People's Republic of China (Moc), as requested by the Legislative Affair Office of the State Council, promulgated a draft of the Measures for the supervision on the Foreign Funded Partnership firm ("the Draft") for social consultation. The Draft mostly reflect the intention of the Moc to remain the approval authority for the foreign partnerships as it does in the setup of the other three types of Fies, such as equity joint venture, contractual joint speculation and wholly foreign owned firm (i.e., Ejv, Cjv and Wfoe, collectively Fies). But the final Foreign Partnership Measures kick the Moc and its local branches ("the Moc local branches") out from the charging authority with the exchange by the local authorized field of the State supervision of manufactures and manufactures (Saic local branch), which is unexpected to but welcome by the professionals and entrepreneurs. This description will do diagnosis on the Foreign Partnership Measures from four perspectives: foreign partnership models, foreign partners' qualification, thresholds and registration of the foreign partnership, in aiming to relate a clear foreign partnership roadmap for foreign partners.
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Foreign Partnership Models
Foreign partners can set up the foreign partnership in China in three models: a. With the other foreign partners; b. With the Chinese individuals, legal persons and the other organizations registered and located in Mainland China; c. Straight through participating the existing domestic partnership.
In the models above, the foreign partners have the choice to take the form of general partnership, wee liability partnership or wee partnership stipulated by the Partnership Law, among which the wee liability partnership is only for the professional institutions such as law firms and accounting firms. Comparing with model a and b, model c seems more feasible and time-and-cost recovery for the foreign partners. A perfect due diligence will be conducted in order to minimize the risk from the performance of the domestic partnership before the participation date of the foreign partners. In consideration of the current supervision and nature of the partnerships, lack of credibility and the other elements in China, it will be difficult to get a perfect due diligence description satisfied with the foreign partners. Therefore, models a and b are extremely recommended. Which model of a or b take needs the consideration and equilibrium of the foreign partners based on their firm plan, legal structuring, such as whether foreign partners themselves intend to do the firm contentious with the foreign partnership and how to exit by transferring the gift in the partnership, ect., and the thresholds discussed below.
Foreign Partners' Qualification
The variation in the expression on the partners from overseas and China should be noted. Foreign partners only comprise foreign enterprises and individuals. The Chinese partners comprise Chinese individuals, legal persons and the other organizations. There is no unified legal interpretation on the "enterprise", though mostly it refers to the profitable organizations. This uncertainty may come from the prudency of the legislator of China on the qualifications of foreign partners. Under description 184 of the Opinions of the consummate People's Court on some Issues concerning the Implementation of the general system of the Civil Law of the People's Republic of China for Trial ("the Opinions"), this expression of "enterprise" on the foreign partners allow the Saic local field more discretion to judge whether the foreign partner is a distinguished "enterprise" or not in accordance with the relevant Chinese laws. In this scenario, the foreign partners need to note that they should not fall into the types of entities prescribed in description 3 of the Partnership Law if they aim to be a general partner, which says that wholly state-funded company, state-owned company, listed company, public-welfare-oriented convention or social society may not come to be a general partner.
Regarding the foreign individuals, they must have full capacity for civil conduct in accordance with description 14 of the Partnership Law. The international private law question will also be complex here. Pursuant to description 180 of the Opinions, the foreign individuals who conduct civil activities in the territory of China, shall be regarded as having full capacity for civil conduct if they have that in accordance with China laws, no matter what their national laws requires for their capacity for civil conduct. Foreign individuals at or above the age of 18 years old are distinguished to be the foreign partners if they are not mentally ill.
Thresholds for Foreign Partnership
Some thresholds, such as the approval by the Moc, imposed on the Fies are lifted for foreign partnership. This means that the foreign partnership and the domestic partnership will be treated with unified threshold in the aspect of approval, which will right on reduce the commentary from the international community, but may cause more from the domestic social (including those Fies). But it does not mean that there will be no thresholds relate on foreign partnership.
Article 3 of the Foreign Partnership Measures lists the general thresholds for the foreign partnerships. The preparation of foreign partnership shall abide by the Partnership Law and the other relevant laws, regulations and rules, and comply with the market policies for foreign investment. These general thresholds need to be analyzed together with the reference to the other relevant laws, regulations, rules and policies.
First, the threshold provided by the Partnership Law is the pre-approval on the firm scope. Where the firm cope of a foreign partnership contains any item, for example oil distribution, that is field to approval prior to registration agreeing to laws or regulations, such approval shall be sought in progress and submitted at the time of registration with Saic local branch. These pre-approvals involve, but not wee to, the Ministry of Land, the Ministry of Transport, the China Securities Regulatory Commission, the China Banking Regulatory Commission and the China insurance Regulatory Commission, etc., which depends on the firm of the foreign partnership.
Second, the Provisions on Guiding the Orientation of Foreign speculation (2002) and the catalogue for the guidance of Foreign speculation Industries (revised in 2007) (collectively "foreign speculation market policies") set up the market threshold for the foreign partnerships, which are the market course basis for the Saic local field to relate registration application to found foreign partnership in China. This will obviously growth the working load of the Saic local branches since they are lack of the feel in this kind of foreign speculation market policies review. We may also anticipate that there might be distinct explanation and implementations on the above two documents, which will be the question faced by those foreign partners who submit the application in the first half year after the Foreign Partnership Measures comes into force on March 1, 2010.
The third threshold is that the verification is required if the task invested by the foreign partners falls into the scope described in the Provisional Measures Governing Verification of Foreign Invested Projects. The charging authority is the National development and Reform Commission and its local branches, which depending on the amount of the total speculation and the nature of the project.
It is principal to note the forth threshold private in the important expression in description 3 of the Foreign Partnership Measures, which put the "rules" as the legal basis for the preparation of foreign partnerships. In the legal system of China, it indicates that the State Council authorizes the ministries or departments under the State Council ("the Ministries") to issue principal "rules" applicable to foreign partnerships. It also reflects that the existing valid "rules" issued by the Ministries, along with those applicable to the representative offices opened by foreign law firms in China, are still the wall for the foreign partners to access the local market in China.
The final threshold comes from the commitment of China in its Wto accession. Although the State Council encourages those foreign partners who have advanced technology and supervision feel to found foreign partnership in China with the purpose to facilitate the development of the contemporary service industry, at this stage, the services industries may only wee to those listed in the schedule of specific Commitments on Services (Annex 9 of the Protocol on the Accession of the People's Republic of China) and the openness will not be wider than the commitments therein.
Registration of the Foreign Partnership
In the Fies regime, all investments by foreign investors need the pre-approvals of the Moc or Moc local branches. In the approval process, the Moc or Moc local branches will review, but not wee to, the article of the application, the description of associations of Fies and contracts signed by the parties if any. Generally, this approval course will take 5 working days to 90 working days depending on the nature and total speculation of the project. In this regard, the cancel of this approval for the foreign partnership will significantly escalate the speed of the preparation in the procedural stage and to a great extent reduce the uncertainty from the Moc or Moc local branches.
The Foreign Partnership Measures stipulates that the representative or agent of all the partners shall submit the preparation application only to the Saic local field and not the Saic. The submission shall include, also the documents required by the Regulations on the supervision of Registration of Partnership firm (revised in 2007, "Partnership Registration Regulation"), the explanation on compliancy of the foreign partnership with the foreign speculation market policies, which will ease the relate by the Saic local branch. In this regard, the relate may not be wee to the formality as provided in description 16 of Partnership Registration Regulation. It seems impossible for the Saic local field to issue the license to the foreign partnership on the spot. In this scenario, the Saic local field shall make a decision on whether to issue the license to the foreign partnership within 20 working days after the date it accepts the perfect application.
The Foreign Partnership Measures is the second case for Moc and Moc local branches to lose approval authority in the up-to-date years. The first case is for the representative office opened by most of foreign enterprises in China since 2004. Although the loss of approval authority, the Moc local branches at the same level with the Saic local branches accepting the application for preparation of foreign partnership shall be advised the registration data (including the establishment, alteration and cancel) of the foreign partnerships by the latter.
Conclusion
For those foreign partners not curious in establishing professional foreign partnerships such as law firms in China, they are now can access the Chinese market with a nearnessy in the choice of partnership. The approval procedures complex with the Moc or its local branches as set up for Fies has been removed. The minimum speculation (registered capital) requirement for Fies has been reduced to Rmb30,000 (Rmb100,000 for one-person wee liability company) by the firm Law of the People's Republic of China (revised in 2005), the Foreign Partnership Measures leave the minimum speculation open to the partners. The foreign partners can contribute with the currency (freely exchanged foreign currency or legally earned Rmb), in kind, Ipr, land use right, the other properties or labor service (limited to general partners) to the foreign partnerships. All these will minimize the cost for foreign partners to accomplish their goal of behalf maximization in China. But those enterprises focusing on the speculation business, such as the foreign-funded speculation capital speculation enterprises and foreign-funded speculation companies, are excluded from the Foreign Partnership Measures due to lack of feel in administrating this kind of enterprises by the government.
The issue of the Foreign Partnership Measures has been waited for more than two years since the Draft was published in 2007 and received a widely welcome. But its simplification with sixteen articles in only one and half pages remains some issues unsolved and ambiguous to the foreign partners. The foreign partners need also to reconsider more when they make a decision on their choice of partnership, which may wish the aid from the legal professionals.
Partnership - New option For Foreign speculation in ChinaTags : todays world news headlines
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