Investment
A legal bind: Waiting to go local
May 2008
A law already in effect and an eagerly anticipated regulation could make life better for foreign private equity (PE) and venture capital (VC) funds operating in China.
The first, the Partnership Enterprise Law, was amended in August 2006 and came into effect on June 1 last year. Significantly, it allowed the formation of limited liability partnerships, according to a report by law firm Morrison and Foerster.
This put it in line with the typical US structure of a VC fund, which provides for general partners, who manage the business, and limited partners, who only provide capital and take share in the profits. While general partners are personally liable for the partnership’s debts, the liability of limited partners only covers the capital contributions they made. Partnerships are also exempt from paying income tax. Instead, partners report their share of profits or losses in the company on an individual basis.
The Partnership Law, however, only governs domestic partnerships, although Article 108 states that the State Council will promulgate measures regulating foreign-invested partnerships. The Ministry of Commerce (MOFCOM) then created a draft of the Foreign Investment Partnership Regulations (FIPR) last January. This held out the promise of allowing foreign firms to use the limited liability model for funds in China. ...
The first, the Partnership Enterprise Law, was amended in August 2006 and came into effect on June 1 last year. Significantly, it allowed the formation of limited liability partnerships, according to a report by law firm Morrison and Foerster.
This put it in line with the typical US structure of a VC fund, which provides for general partners, who manage the business, and limited partners, who only provide capital and take share in the profits. While general partners are personally liable for the partnership’s debts, the liability of limited partners only covers the capital contributions they made. Partnerships are also exempt from paying income tax. Instead, partners report their share of profits or losses in the company on an individual basis.
The Partnership Law, however, only governs domestic partnerships, although Article 108 states that the State Council will promulgate measures regulating foreign-invested partnerships. The Ministry of Commerce (MOFCOM) then created a draft of the Foreign Investment Partnership Regulations (FIPR) last January. This held out the promise of allowing foreign firms to use the limited liability model for funds in China. ...
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