Law of the People’s Republic of China on Partnership Enterprises

(Adopted and promulgated at the 24th Meeting of the Standing Committee of the Eighth NationalPeople's Congress on February 23, 1997 )

Chapter I General Provisions

Article 1

This Law is formulated with a view of standardizing partnership enterprises' activities, protecting the legitimate rights and interests of partnership enterprises and their partners, maintaining the social and economic order, and promoting the development of the socialist market economy.

Article 2

"Partnership enterprise" mentioned in this Law refers to a profit-making organization established within the territory of China according to this Law with their partners associated under a partnership agreement, each making capital contributions, carrying out business operations, distributing profits, undertaking risks and bearing unlimited and joint liability for the partnership enterprise's debts.

Article 3

A partnership agreement shall be in written form after consultation and agreement among all the partners according to law.

Article 4

In concluding a partnership agreement and establishing a partnership enterprise, the parties shall follow the principles of voluntariness, equality, fairness, honesty and credibility.

Article 5

Partnership enterprises shall not use words such as "limited" or "limited liability" in their names.

Article 6

In engaging in business activities, partnership enterprises must observe laws and

administrative regulations and abide by professional ethics.

Article 7

Property, legitimate rights and interests of partnership enterprises and their partners shall

be protected by law.

Chapter II Establishment of Partnership Enterprises

Article 8

The following conditions shall be fulfilled for the establishment of a partnership

enterprise:

(1)    two or more partners each of which to bear unlimited liability according to law;

(2)    a written partnership agreement;

(3)    capital contributions actually made by each of partners;

(4)    the name of the partnership enterprise; and

(5)    the place of business and conditions necessary for partnership operations.

Article 9

A partner shall be a person with full capacity for civil conduct.

Article 10

Those prohibited by laws or administrative regulations from engaging in profit-making activities shall not be partners of a partnership enterprise.

Article 11

A partner may make his capital contributions in currency, or by providing material objects, land use rights, intellectual property rights or other property rights. The capital contributions above-mentioned shall be legal property or property rights owned by the partner. Capital contributions in other forms than in currency may, if necessary, be appraised and evaluated by all the partners through consultation, or by a statutory evaluation institution with the authorization of all the partners. A partner may provide personal services as capital contributions after consultation and agreement among all the partners. The evaluation of contributions in the form of services shall be determined by all the partners through consultation.

Article 12

Partners shall perform their duties of capital contribution in terms of the form, amount and time limit of such contribution, as agreed upon among them in the partnership agreement. Capital contributions actually made by each of the partners according to the partnership agreement shall be regarded as contributing to the partnership enterprise.

Article 13

A partnership agreement shall include the following items:

(1)    the name of the partnership enterprise and address of its place of business;

(2)    the purpose of partnership and the business scope of the partnership enterprise;

(3)    names and residences of each partner;

(4)    the form, amount and time limit for each partner to make capital contributions;

(5)    the method of distributing profits and undertaking risks;

(6)    execution of the partnership enterprise's affairs;

(7)    entering into and withdrawal from partnership;

(8)    disbandment and liquidation of the partnership enterprise; and

(9)    default liability.

A partnership agreement may include the operation term of the partnership enterprise and the means of dispute settlement among partners.

Article 14

A partnership agreement takes effect upon the signing and sealing by all the partners of the partnership agreement. Any partner shall enjoy rights and undertake liabilities according to the partnership agreement. The partnership agreement may be revised or supplemented if all the partners reach agreement through consultation.

Article 15

Anyone who applies for registration of the establishment of a partnership enterprise shall submit to the enterprise registration authority documents such as a written application for registration, a partnership agreement and partners' identity certificates. Where it is required by laws or administrative regulations that the establishment of the partnership enterprise must be subject to the examination and approval by the department concerned, the applicant shall submit an approval document in applying for registration of establishment.

Article 16

The enterprise registration authority shall, within 30 days as of the date of receiving the documents of application for registration, make a decision whether or not to grant registration. It shall grant registration and issue a business licence to the applicants that meet the requirements stipulated in this Law, and shall not grant registration to those who fail to meet the requirements stipulated in this Law and give them a written reply explaining the reasons.

Article 17

The date of the issuance of the partnership enterprise's business licence shall be the date of the establishment of a partnership enterprise. No partner may engage in any profit-making activities in the name of the partnership enterprise that has not yet taken out the business licence.

Article 18

A partnership enterprise intending to establish a branch shall apply for the registration of establishment of the branch to the enterprise registration authority in the place where the branch is to be located for a business licence.

Chapter III Partnership Enterprises' Property

Article 19

During the period in which a partnership enterprise exists, capital contributions made by partners and all proceeds earned on behalf of the partnership enterprise shall be the property of the partnership enterprise. Property of a partnership enterprise shall be under the unified management and use of all the partners according to this Law.

Article 20

Partners shall not claim the partitioning of property of the partnership enterprise before the liquidation of the enterprise unless otherwise provided for by this Law. If partners privately transfer or dispose of the property of the partnership enterprise before the liquidation of the enterprise, the partnership enterprise shall not on that ground act against a third party who has acted in good faith and has not informed of the case.

Article 21

During the period in which a partnership enterprise exists, any partner who intends to transfer to a person who is not one of the partners all or part of his property shares in the partnership enterprise must obtain the consent of all other partners. The transfer of all or part of the shares of property in the partnership enterprise between partners shall be notified to the other partners.

Article 22

Where a partner transfers his share of property according to law, the other partners shall, on identical terms, have priority in acquiring the share.

Article 23

Where those who are not partners, with the consent of all the partners, acquire shares of property in the partnership enterprise according to law, they shall become the partners of the partnership enterprise upon the modification of the partnership agreement and shall enjoy rights and undertake liabilities according to the modified partnership agreement.

Article 24

Where a partner puts his share of property in the partnership enterprise in pledge, he shall obtain the consent of all other partners. If a partner, without the consent of all other partners, puts his share of property in the partnership enterprise in pledge, his act shall be void or treated as withdrawal from partnership. If he thereby causes losses to the other partners, he shall bear liability for compensation according to law.

Chapter IV Execution of Partnership Enterprise Affairs

Article 25

Each partner shall have the equal right to execute the partnership enterprise's affairs. All the partners may jointly execute the enterprise's affairs, or, as agreed upon in the partnership agreement or by decision of all the partners, authorize one or more partners to execute the enterprise's affairs. The partner executing the partnership enterprise's affairs shall externally represent the partnership enterprise.

Article 26

Where one or more partners has(have) been authorized to execute the partnership enterprise's affairs as stipulated in the preceding Article, the other partners shall no longer execute the enterprise's affairs. Partners not participating in the execution of affairs shall have the right to supervise the partners executing affairs and inspect the execution.

Article 27

Where one or more partners execute(s) the partnership enterprise's affairs, the partner(s) shall report the execution of affairs, the business operations and financial condition of the partnership enterprise to the other partners not participating in the execution of affairs. Proceeds earned in the execution of the partnership enterprise's affairs shall belong to all the partners and losses and civil liability incurred therefrom be undertaken by all the partners.

Article 28

Partners shall have the right to consult the account book for finding out about the business operations and financial condition of the partnership enterprise. Where partners make decisions on items relevant to the partnership enterprise according to law or the partnership agreement, unless otherwise provided for by this Law or by the partnership agreement, the items may, by decision of all the partners, be decided on a one-person-one-vote basis.

Article 29

Where partners separately execute the partnership enterprise's affairs as agreed upon in the partnership agreement or by decision of all the partners, any of partners may address oppositions to the other partners on the execution of affairs. If an opposition is addressed, the execution of the affairs involved shall be suspended. In case of occurrence of a dispute, all the partners may jointly make a decision thereon. If the partner(s) authorized to execute the partnership enterprise's affairs fail(s) to act in accordance with the partnership agreement or the decision of all the partners, the other partners may make a decision to withdraw such authorization.

Article 30

Partners shall not individually or in co-operation with others engage in businesses competitive with their partnership enterprise. Partners shall not trade with their partnership enterprise except otherwise agreed upon in the partnership agreement or with the consent of all the partners. Partners shall not engage in any activity damaging the interests of the partnership enterprise.

Article 31

The execution of the following affairs in a partnership enterprise shall be subject to the

consent of all the partners:

(1)    disposing of real estate of the partnership enterprise;

(2)    changing the name of the partnership enterprise;

(3)    transferring or disposing of intellectual property rights or other property rights of the

partnership enterprise;

(4)    applying to the enterprise registration authority for registration of changes;

(5)    offering others a security on behalf of the partnership enterprise;

(6)    appointing persons who are not partners to act as managerial executives of the partnership

enterprise; or

(7)    dealing with other relevant affairs as agreed upon in the partnership agreement.

Article 32

Partners shall share profits and losses of the partnership enterprise in proportion as agreed upon in the partnership agreement. In absence of stipulations for such proportion in the partnership agreement, each partner shall share profits and losses equally. A partnership agreement shall not stipulate for the distribution of all profits to part of the partners or for the sharing of all losses among part of the partners.

Article 33

During the period in which the partnership enterprise exists, partners may, as agreed upon in the partnership agreement or by decision of all the partners, increase their capital contributions to the partnership enterprise for the purpose of expanding the business scale or making up losses.

Article 34

The annual or periodic plan detailed for profit distribution and loss sharing in a partnership enterprise shall be decided through consultation of all the partners or as agreed upon in the partnership agreement.

Article 35

Managerial executives appointed by a partnership enterprise shall perform their duties within the scope of power authorized by the partnership enterprise. Managerial executives appointed by a partnership enterprise who exceed the scope of power authorized by the partnership enterprise in engaging in business activities, or cause losses to the enterprise intentionally or through gross negligence shall bear the liability for compensation according to law.

Article 36

Partnership enterprises shall establish their enterprise financial and accounting systems in accordance with the provisions of laws and administrative regulations.

Article 37

Partnership enterprises shall perform the duty of paying taxes according to the laws.

Chapter V Relations of Partnership Enterprises to Third Parties

Article 38

No restrictions imposed by a partnership enterprise on rights of a partner to execute the enterprise's affairs and externally represent the enterprise may act against a third party who has acted in good faith and has not been informed of the case.

Article 39

A partnership enterprise shall pay off its debts first out of all its property. If the property of the partnership enterprise is insufficient to pay off its due debts, each partner shall bear the unlimited and joint liability for paying off debts.

Article 40

Where a partnership enterprise pays its debts out of its property and the debts cannot be paid off in full, each partner shall repay the difference with his property other than his capital contributions to the partnership enterprise in proportion as stipulated in the first paragraph of Article 32 of this Law.

Any partner who overpays his share of the debts to bear the joint liability shall have the right to claim compensation from the other partners.

Article 41

A creditor of one partner of a partnership enterprise shall not set off the creditor's rights against his debts owed to the partnership enterprise.

Article 42

Where a partner owes personal debts, his creditor shall not take his place in the partnership enterprise to exercise the partner's rights.

Article 43

Where a partner's own property is not sufficient to pay off his personal debts, the partner may pay the debts out of his proceeds shared in the partnership enterprise. Alternately, the creditor may apply to a people's court for compulsory execution of the property shares of the partner in the partnership enterprise to pay off the debts.

The other partners shall have priority in acquiring the property shares of the partner.

Chapter VI Entering into and Withdrawing from Partnerships

Article 44

A person intending to enter into partnership shall obtain the consent of all original partners and shall conclude a written entering agreement according to law. In concluding the entering agreement, the original partners shall inform the new partner of the business operations and financial condition of the partnership enterprise.

Article 45

A partner newly entering into the partnership shall enjoy the equal rights and undertake equal liabilities with the original partners. If, however, otherwise stipulated in the entering agreement, such stipulations shall prevail. The new partner shall undertake joint liability for the debts of the partnership enterprise incurred before he enters into the partnership.

Article 46

Where the partnership agreement stipulates the period of operation of the partnership enterprise, partners may withdraw from the partnership under any of the following circumstances:

(1)    Facts resulting in withdrawal from partnership as agreed upon in the partnership agreement occur;

(2)    The withdrawal from partnership has been approved by all the partners;

(3)    Facts resulting in difficulties for partners to continue participation in the partnership enterprise occur;

(4)    The other partners have seriously broken the duties as agreed upon in the partnership agreement.

Article 47

Where the partnership agreement does not stipulate the period of operation of the partnership enterprise, partners may withdraw from partnership without adversely affecting the execution of affairs in the partnership enterprise and shall inform the other partners 30 days before.

Article 48

A partner unilaterally withdrawing from partnership in violation of the provisions of the two preceding articles shall compensate for losses caused to the other partners.

Article 49

A partner shall naturally withdraw from a partnership under any of the following circumstances:

(1)    Where he dies or is declared dead according to law;

(2)    Where he is declared a person having no capacity for civil conduct;

(3)    Where he loses personal capacity for paying debts; or

(4)    Where all his property shares in the partnership enterprise have been executed by a people'scourt. The withdrawal from partnership as stipulated in the preceding paragraph shall take effect on the date the fact occurs.

Article 50

A partner may be removed by decision of the other partners through agreement under any of the following circumstances:

(1)    Where he fails to perform the obligation of capital contributions;

(2)    Where he intentionally or through gross negligence causes losses to the partnership enterprise;

(3)    Where he acts improperly in executing the affairs of the partnership enterprise;

(4)    Where other facts occur as agreed upon in the partnership agreement. A decision on removal of a partner shall be notified in writing to the removed person. The removal shall take effect in the result of the withdrawal of the removed person on the date when he receives the notice. The removed person may, within 30 days from the date receiving the notice of removal, bring a lawsuit to a people's court if he refuses to accept the decision on his removal.

Article 51

Where a partner dies or is declared dead according to law, his successor who is legally entitled to the property shares in the partnership enterprise shall, as agreed upon in the partnership agreement or with the consent of all the partners, have the status of the partner as of the date the succession begins. If the legal successor is unwilling to be a partner, the partnership enterprise shall return the property shares he inherits according to law. If the legal successor is a minor, his guardian may, with the consent of the other partners, exercise rights on his behalf till the minor comes of age.

Article 52

Where a partner withdraws from partnership, the other partners shall clear accounts with him under the financial condition of the partner enterprise at the time of his withdrawal and shall return his property shares.

In the case of unsettled affairs in a partnership enterprise at the time of a withdrawal from the partnership, the clearance of accounts shall be carried out upon settlement of such affairs.

Article 53

The method for returning property shares in the partnership enterprise to a withdrawing partner shall be stipulated in the partnership agreement or decided by all the partners. The shares may be returned to the withdrawing partner in currency or in kind.

Article 54

A withdrawing partner shall bear liability jointly with the other partners for debts of the partnership enterprise incurred before his withdrawal from partnership.

Article 55

Where property of a partnership enterprise is less than its debts at the time of a partner's withdrawal, the partner shall share the losses according to the provisions of the first paragraph of Article 32 in this Law.

Article 56

Where the registered items of a partnership enterprise change, or need to be renewed, due to entering into or withdrawal from partnership, a revision of the partnership agreement or for other reasons, the partnership enterprise shall, within 15 days from the date of making the decision on changes or the facts occur, apply to the enterprise registration authority for such registration.

Chapter VII Disbandment and Liquidation of Partnership Enterprises

Article 57

A partnership enterprise shall be disbanded under any of the following circumstances:

(1)    The period of operation as agreed upon in the partnership agreement expires and partners are

unwilling to continue the operations;

(2)    The facts resulting in the disbandment as agreed upon in the partnership agreement occur;

(3)    The disbandment has been decided upon by all the partners;

(4)    Partners have not formed the statutory number;

(5)    The purpose of partnership has been achieved or cannot be achieved as agreed upon in the

partnership agreement;

(6)    The business licence has been revoked according to law; or

(7)    Other reasons stipulated in laws and administrative regulations for the disbandment of the partnership enterprise arise.

Article 58

A partnership enterprise shall be liquidated after being disbanded and shall notify its creditors by notice or announcement.

Article 59

The liquidators of a partnership enterprise after its disbandment shall be composed of all the partners. If the partners are not all eligible, one or more partners or a third party may, with the consent of over half of all the partners and within 15 days after the disbandment of the enterprise, be appointed as the liquidator(s). In case of failure to appoint the liquidators within 15 days, partners or other interested persons may apply to a people's court for the appointment of liquidators.

Article 60

Liquidators shall execute the following affairs during liquidation:

(1)    checking up on the property of the partnership enterprise, and separately formulating a

balance sheet and a detailed inventory of property;

(2)    disposing of the unsettled affairs relevant to the liquidation of the partnership enterprise;

(3)    paying off taxes owed by the enterprise;

(4)    clearing up claims and debts;

(5)    disposing of, after paying off the debts of the partnership enterprise, its remaining

property; and

(6)    participating in civil lawsuits on behalf of the partnership enterprise.

Article 61 The property of a partnership enterprise shall, after the payment of liquidation expenses, be applied to make repayment in the following order:

(1)    wages of employees and labour insurance expenses owed by the partnership enterprise;

(2)    taxes owed by the partnership enterprise;

(3)    debts incurred by the partnership enterprise; 

(4)    capital contributions returnable to partners.

With regard to the remaining property of a partnership enterprise after repayment in the order abovementioned, it shall be distributed in proportion as stipulated in the first paragraph of Article 32 in this Law.

Article 62

Where all property of a partnership enterprise is not sufficient to pay off its debts at the time of liquidation, the provisions of Articles 39 and 40 in this Law shall apply.

Article 63

After the disbandment of a partnership enterprise, its original partners shall continue to be jointly liable for debts incurred by the enterprise during the period in which the enterprise exists. If, however, the creditors fail to claim the repayment of debts within five years, the liability for repayment shall extinguish.

Article 64

Upon the completion of liquidation, a liquidation report shall be formulated and shall, bearing the signatures and seals of all the partners, be submitted to the enterprise registration authority within 15 days for the registration of cancellation of the partnership enterprise.

Chapter VIII Legal Liability

Article 65

Any violator of this Law who offers false documents or resorts to other deceptive means and is thereby granted enterprise registration, shall be ordered to make corrections and may be fined not more than 5,000 yuan; if the circumstances are serious, the enterprise registration shall be revoked.

Article 66

Any violator of this law who uses words such as "limited" or "limited liability" in the name of a partnership enterprise shall be ordered to make corrections and may be fined not more than 2,000 yuan.

Article 67

Any violator of this law who engages in business activities in the name of a partnership enterprise without taking out a business licence according to law, shall be ordered to stop business activities and may be fined not more than 5,000 yuan. In case of a change in the registered items, a partnership enterprise that fails to register such a change according to the provisions of this Law shall be ordered to apply for the registration within a time limit. It shall be fined not more than 2,000 yuan for failure to register the change within the time limit.

Article 68

Any partner who, in executing partnership affairs, misappropriates the interests which ought to belong to the partnership enterprise, or seizes the partnership property by other means, shall be ordered to return the interests or property to the partnership enterprise. If he causes losses to the partnership enterprise or the other partners, he shall bear the liability for compensation according to law. If a crime has been constituted, criminal liability shall be investigated according to law.

Article 69

Any partner who without authorization disposes of partnership affairs, the execution of which shall be subject to the consent of all the partners as stipulated in this Law or in the

partnership agreement, and thereby causes losses to the partnership enterprise or the other partners, shall bear the liability for compensation according to law.

Article 70

Any partner not authorized to execute the partnership affairs who executes the affairs and thereby causes losses to the partnership enterprise or the other partners, shall bear the liability for compensation according to law.

Article 71

Any partner who, in violation of the provisions of Article 30 in this Law, engages in businesses competitive with his partnership enterprise or trades with their enterprise and thereby causes losses to the enterprise or the other partners, shall bear the liability for compensation according to law.

Article 72

Any employee of a partnership enterprise who takes advantage of his position to seize the partnership property or convert the partnership assets to his own use, shall bear civil liability for compensation according to law. If a crime has been constituted, criminal liability shall be investigated according to law.

Article 73

Any liquidator who fails to submit the liquidation report to the enterprise registration

authority as stipulated in this Law, or conceals major facts or omits important information in

the liquidation report submitted, shall be ordered to make corrections.

Article 74

Any partner acting as a liquidator who seeks illegal income or seizes the partnership property in conducting liquidation shall be ordered to return the income or property to the partnership enterprise. If a crime has been constituted, criminal liability shall be investigated according to law. A liquidator authorized by partners who commits the act stipulated in the preceding paragraph shall be ordered to return the income or property to the partnership enterprise and shall bear the liability for compensation according to law. If a crime has been constituted, criminal liability shall be investigated according to law.

Article 75

Any liquidator who, in violation of the provisions of this Law, conceals or transfers the partnership property, makes false entries in the balance sheet or in the detail inventory of property, or distributes the partnership property before paying off debts, shall be ordered to make corrections. If losses have been caused to the creditors, the offender shall bear liability for compensation according to law. If a crime has been constituted, criminal liability shall be investigated according to law.

Article 76

A partner breaking the partnership agreement shall bear liability for the breach according to law. If a dispute over the performance of the partnership agreement arises, partners may settle it through consultation or mediation. If partners are unwilling to settle their dispute through consultation or mediation, or if consultation or mediation is unsuccessful, they may, in accordance with the arbitration clause provided in the partnership agreement or a written arbitration agreement reached by the partners afterwards, apply to an arbitration body for arbitration. If no arbitration clause is provided in the partnership agreement, and a written arbitration agreement is not reached afterwards, the partners may bring a lawsuit to a people's court.

Article 77

Administrative organs concerned and their personnel who, in violation of the provisions of this Law, abuse their powers, engage in malpractices for personal gains, take bribes or infringe over legitimate interests of partnership enterprises, shall be given disciplinary sanctions according to law. If a crime has been constituted, criminal liability shall be investigated according to law.

Chapter IX Supplementary Provisions

Article 78

This Law shall enter into force on August 1,1997.