Introduction to Foreign-Funded Partnership Enterprise (FFPE)
A Foreign-Funded Partnership Enterprise (FFPE) is an unlimited liability business entity without minimum requirements on registered capital. A partnership in the People's Republic of China is a business entity governed by the Partnership Enterprise Law, passed by the Standing Committee of the National People's Congress to authorize and govern partnership enterprises. A partnership is a type of business entity in which partners share with each other the profits or losses of the business undertaking in which all have invested. This guide, prepared by Finerise Consultants, provides an overview of FFPE types, advantages, and registration procedures in China, applicable across all regions including Guangdong and the Greater Bay Area.
Different Types of Partnership Enterprise
Following are the different types of FFPE available in China:
- General Partnership Enterprise (GPE): A general partnership enterprise may be formed by general partners who bear unlimited joint and several liability for the debts of the partnership. The general partners share unlimited liabilities for the debt of the partnership.
- Limited Partnership Enterprise (LPE): A limited partnership enterprise is formed by a combination of general partners and limited partners where the limited partners bear the liabilities for the partnership's debts to the extent of their capital contributions.
- Special General Partnership Enterprise (SGP): A special general partnership enterprise resembles a general partnership except that it must be a professional service institution offering services requiring professional knowledge and special skills. The structure shields co-partners from liabilities due to the willful misconduct or gross negligence of one partner or a group of partners. It is very similar to the Limited Liability Partnership (LLP) in Europe and America.
Advantages of a Partnership Enterprise
The advantages of establishing a PE, compared with other types of enterprises, include, but are not limited to:
- No corporate income tax for the partnership enterprise — partners pay individual income tax on their respective share of profits.
- No requirements on minimum registered capital.
- Simpler procedures compared with Wholly Foreign-Owned Enterprise (WFOE) or Joint Venture (JV) formation.
- Capability of converting RMB profits to US dollars for remittance to its parent company outside of China.
- Foreign enterprises or individuals are allowed to establish a Partnership Enterprise with Chinese individuals (while Chinese individuals are not permitted to form a Joint Venture with foreign investors under the current legal framework).
- Flexible profit distribution: The profit distribution of a PE may follow an informal negotiated agreement or abide by a scheme adopted in the partnership agreement. (For LLCs, profit distributions are strictly according to the percentage of investment of shareholders.)
Disadvantages of a Partnership Enterprise
- Unlimited liability: A partnership must pay all its debts with property contributed to the partnership by the partners. If the partnership is a general partnership, the partners bear joint and several liabilities. If limited liability is required, compare the WFOE and Joint Venture structures, both of which are separate legal persons with shareholder liability limited to subscribed capital.
- Limited business name options: Cannot have a business name with "Company" in it (e.g., XYZ Co., or XYZ Co., Ltd.). Only names like "XYZ Firm (PE)" or "XYZ Center (PE)" are allowed.
- Property rights transfer restrictions: According to the Partnership Enterprise Law, the transfer of partnership property rights MUST be agreed upon by all partners in a PE.
- Credibility challenges: China has not adopted a Natural Person's Bankruptcy system; credibility of the partners may be difficult to maintain if the PE encounters financial difficulties.
Capital Contribution
A partner may contribute capital to the partnership to garner a share of the partnership's profits or losses. A capital contribution may include money, intellectual property rights, land use rights or other properties, or labor services at a valuation determined by agreement among the partners. If the partnership is a limited partnership, the limited partners may not make capital contributions with labor services.
Profit & Loss Distribution
The default distribution scheme of profits or losses follows the proportion to capital contributions made by the partners. However, the distribution scheme may follow an informal negotiated agreement or abide by a scheme adopted in the partnership agreement. If the proportions of capital contributions cannot be discerned, then the profits or losses will be distributed equally by the partners. The partnership agreement may not distribute all losses or all profits to just one or a group of partners within the partnership.
General Tax Information
No corporate income tax is required. The partners shall pay their respective share of the partnership income through individual income tax or enterprise income tax, depending on the nature of the partner. For the filing mechanics and monthly bookkeeping scope, see Bookkeeping & Tax Filing and Individual Income Tax Filing.
Profit Repatriation
The Chinese government allows Foreign-Invested Partnership Enterprises to remit their profits out of the country, and such remittances do not require the prior approval of the State Administration of Foreign Exchange (SAFE). Dividends cannot be distributed and repatriated overseas if the losses of previous years have not been covered, while dividends not distributed in previous years may be distributed together with those of the current year. Repatriating the Registered Capital to home countries is forbidden during the term of business operation.
Terms and Termination
Operating Period: Unlimited, unless otherwise specified in the partnership agreement.
Conditions for Establishing an FFPE in China
A partnership requires a written agreement between the partners. This written agreement must be submitted to the State Administration for Market Regulation along with the certified passport copy of the partners (if applicable). Should it be a general partnership enterprise (GPE) or limited partnership enterprise (LPE), that shall be mentioned in its name. An LPE may not have fewer than 2 partners where one of them is a general partner, nor may it have more than fifty partners.
- At least 2 or more partners.
- A written partnership agreement.
- Capital contribution subscribed to or actually paid by the partners.
- A business name and an office in a commercial building for the partnership enterprise. Accepted address types are set out in Registered Address Solutions. For Foshan specifically, the address must be pre-recorded in the Standard Address Database — see the Foshan Address Compliance Guide.
How Finerise Consultants Can Help You
- ☑ Register a Foreign-Funded Partnership Enterprise (FFPE) – Full process management from document preparation to license collection.
- ☑ Accounting & Tax Consulting Service – Ongoing compliance support for your partnership in China. See Bookkeeping & Tax Filing for the monthly scope.
- ☑ Annual Return and Alteration for FFPE – Timely filing and change registration services. See Annual Return Filing and Company Amendment Services.
- ☑ Apply Work & Residence Permit – For partners and representatives. See Work Permit & Z Visa and Residence Permit for Foreigners.
- ☑ Office Rental Assistance – Help to rent an office in Guangzhou, Foshan, and other Guangdong cities. See Registered Address Solutions.
- ☑ Register a Representative Office, Joint Venture Enterprise, or WFOE – Explore other entity types when your business needs evolve. See Representative Office, Joint Venture LLC Formation and WFOE Setup in China.
About Finerise Consultants
Founded in 2005, Finerise Consultants has been committed to company registration management, offshore company registration, overseas investment services, foreign investment services, financial and tax agency consulting, intellectual property agency and other fields. With over 20 years of experience, we provide professional, fast, intimate, thoughtful, safe, and cost-effective services. We are your trustworthy partner in China! Welcome to consult!
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