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Foreign Invested Partnership Enterprises (FIPE) Formation in China

2018-08-02

Foreign Invested Partnership Enterprises (FIPE) Formation in China




Foreign Invested Partnership Enterprise is a relatively new form of commercial entity. The Regulations of Foreign Invested Partnership Enterprise (FIPEs) , which governs the establishment of partnership enterprises by foreign companies or individuals in China, has put into force since March 1, 2010. FIPE is becoming more popular among new start-ups in China because it does not require registered capital, but can still hire people, collect payments, issue invoices, and apply for jobs and residence in China. Most people in China may not know about FIPE because it is relatively new and the government has not widely promoted it.


The term "Partnership Enterprise" refers to general partnerships and limited liability partnerships established by natural persons, legal persons and other organizations in China. State-owned companies, state-owned companies, listed companies, Public welfare institutions or social organizations may not become general partners of limited partnerships.


There are three different types of Partnership Enterprises:

1. General Partnership Enterprise (GPE)

A general partnership enterprise may be composed of general partners who bear unlimited joint liability for the debts of the partnership enterprise.

2. Limited Partnership Enterprise (LPE)

A limited partnership consists of a general partner who assumes unlimited joint liability and a limited partner who is responsible for the debt of the partnership.

3. Special General Partnership Enterprise (SGPE)

A special general partnership is similar to a general partnership, but must be a professional service provider offering services requiring professional knowledge and special skills. This structure exempts the co-partner from liability due to intentional misconduct or gross negligence of a partner or group of partners.


What are the advantages of Setting Up a Partnership in China?

1. No requirements on minimum registered capital.

2. Less procedures than foreign-owned enterprises or joint ventures.

3. If the partner is an individual, no corporate income tax is required. Individual partners should pay the partnership income separately. If the partner is a company, corporate income tax is applicable.

4. Ability to convert RMB profits into US dollar remittances to parent companies outside China.

5. Allow foreign companies or individuals to establish partnerships with Chinese individuals (Chinese individuals may not establish joint ventures with foreign investors).

6. Unlike a limited liability company that shares profits based on the proportion of shares held by shareholders, the distribution of profits or losses in FIPE can be negotiated between partners through a partnership agreement, regardless of the amount of capital contribution.


What are the disadvantages of Setting Up a Partnership in China?

1. Unlimited liability; The partnership must pay all debts with the property provided by the partner for the partnership. If the partnership is a general partnership, the partners are jointly and severally liable.

2. A limited company name cannot include a "company" in the company name, for example, Co. or Co., Ltd.

3. The property transferred by the partnership must be agreed by all partners in the PE before it can be transferred to a third party.

4. China does not adopt a natural person bankruptcy system. If FIPE is in trouble, the reputation of partners will be difficult to maintain.

As for trading business of a FIPE, it would be difficult for FIPE to get VAT status initially.


Setting up a China New Partnership Company must meet the following Requirements

1. At least 2 or more partners. There is no requirement for the nationality of the partner, so it is possible for all foreign investors to form a FIPE or a foreign and Chinese partner to form FIPE.

2. Written partnership agreement.

3. The amount of capital contributed by the partner or actually paid.

4. A business name and an office for the partnership enterprise.


Documents Required for partnership enterprise registration:

1. For a company partner: company registration certificate, the company's articles of association certified by Chinese embassy or Chinese consulate overseas.

2. For a personal partner: passport copy, proof of residential address (such as utility bill issued within 3 months, valid driver's license with address, national ID card with address, etc.) certified by Chinese embassy or Chinese consulate overseas.

3. Cooperation agreement signed by all partners.

4. Proof of good reputation of bank for the partner, certified by Chinese embassy or consulate (Managing partner only).

5. Company's Chinese name approval certificate

6. China office address and lease agreement.


If you want to get more details or need help with FIPE Formation in China, please Contact Us.


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