• Administrative Rules on Registration of Foreign Invested Partnership Enterprises
  • March 17, 2010 | Authors: Edward J. Epstein; Olivia Lee
  • Law Firms: Troutman Sanders LLP - Shanghai Office ; Troutman Sanders LLP - Hong Kong Office
  • Following the State Council's Administrative Measures on the Establishment of Partnership Enterprises by Foreign Enterprises or Individuals (the “State Council Measures”) (please refer to our China Alert dated January 5, 2010), the State Administration of Industry and Commerce (“SAIC”) promulgated the Administrative Rules on Registration of Foreign Invested Partnership Enterprises (the “SAIC Rules”) on February 2, 2010, total of which became effective on March 1, 2010.

    The SAIC Rules detail the provisions with respect to the incorporation, amendment, and termination registration requirements and procedures of a Foreign Invested Partnership Enterprise (“FIP”) stipulated in the State Council Measures and clarify some uncertain issues in the State Council Measures.

    Regulatory Authority -- The SAIC Rules confirm that the incorporation, amendment registration and termination of FIPs will be governed by the SAIC and its local counterparts without the need for approval from the Ministry of Commerce ("MOFCOM"). The SAIC Rules also make it clear that where a planned FIP is subject to any specific government pre-approvals for engaging in certain business, it must obtain the relevant license or permit and submit the same to AIC for establishment application. 

    In addition, the SAIC Rules further provide that where a planned FIP’s business scope falls within the restricted category under the Guideline Catalogue of Industries for Foreign Investment (the “Catalogue”) but is not subject to any statutory pre-approval requirements, the AIC should seek written opinion from the relevant governmental authorities. This is an unusual requirement, which is designed to make up for the lack of MOFCOM’s review of the application.

    More Restriction on Market Entry -- According to the SAIC Rules, setting up a FIP will be subject to stricter restrictions than a foreign invested limited liability company. The State Council Measures only stipulate that partnerships incorporated in China by foreign enterprises or individuals shall abide by the Partnership Law and other relevant laws and regulations, and they shall also be in compliance with the industry policies for foreign investment (mainly, the Catalogue).

    However, the SAIC Rules further stipulate that foreign partners are prohibited from setting up FIPs to engage in business where foreign ownership is limited to a certain percentage under the Catalogue. This means that FIPs are only available for business where a foreign partner is allowed to hold 100% ownership interest under the Catalogue.

    Capital Contributions -- The State Council Measures only state that the monetary contributions by foreign partners to the partnership will be convertible currencies or lawfully earned RMB. The SAIC Rules confirm that capital contribution can be in the form of in-kinds, intellectual property rights, land use rights or other property rights. Therefore, the SAIC Rules adopts the same scope of capital contributions forms as what the Partnership Law stipulates.

    The State Council Measures are silent on the minimum capital required, the minimum ratio for monetary contribution, and the timeline for capital contribution. However, the SAIC Rules remain silent on these issues. These issues will most likely be clarified in practice.

    Downstream Investments -- The State Council Measures state that FIPs which are mainly engaged in investment business shall comply with "other relevant rules". The SAIC Rules further stipulate that where a FIP established for investment purposes makes domestic investments, the laws applicable to foreign investment should apply. However, it remains an uncertainy whether downstream investments by PEs using a FIP structure should be regulated as foreign investments (a more strict approach) or as reinvestments by a foreign-invested enterprise (a more relaxed approach).