Foreign Invested Partnership Enterprises (FIPE) refers to foreign enterprises set up by two or more partners. FIPE could be established under two channels:
- Two or more foreign enterprises or foreign individuals shall establish a partnership in China, and all the partners shall be foreign enterprises or individuals.
- Foreign enterprises or individuals shall establish partnerships in China with individual persons, legal corporation and other organizations of China.
Advantages of China Foreign Invested Partnership Enterprise
- Chinese individuals are allowed to participate directly as the individual investor, which is different from the Joint Venture (JV).
- No need to apply for the further approved by commercial authorities for establishment.
- No capital injection required and no minimum capital stipulated.
- The enterprise can keep a simple management mechanism structure, low management cost, higher decision-making efficiency.
- No Corporate Income Tax.
- It reduces the operating cost of the enterprise
Disadvantages of China Foreign Invested Partnership Enterprise
√ Industrial boundaries for China Foreign Invested Partnership Enterprise
The prohibited classes marked as "shall be limited to the joint venture", "limited to cooperation", "limited to the joint venture and cooperation", "China holding company", "China relative holding" and projects with foreign investment proportion requirements in the Foreign Investment Industrial Guidance Catalogue shall not set up any foreign-funded partnership enterprises.
√ General partner bears unlimited liability, limited partner has no enterprise management rights
The general partner of FIPE assumes unlimited joint liability for the debts of the FIPE. While the traditional Chinese-foreign joint ventures, Sino-foreign cooperative enterprises and WFOE adopt the limited liability company organization form, and these company forms’ shareholders bears limited liability for debts based on its subscribed capital contribution to the company.
Although PRC FIPE Law stipulates that each FIPE has at least one general partner, while the other partners can serve as a limited partner. The general partner bears unlimited joint and several liabilities for the debts of the partnership, while a limited partner is limited to its subscribed capital contribution to bear the liability for the debts of the partnership. However, the limited partners shall be prohibited from exercising the partnership management right, and shall not carry out the partnership affairs and shall not represent the limited partnership.