Foreign Partnership Models

　　Foreign partners can set up the foreign partnership in China in three models: a. with the other foreign partners; b. with the Chinese individuals， legal persons and the other organizations registered and located in Mainland China; c. through participating the existing domestic partnership.

　　In the models above， the foreign partners have the option to take the form of general partnership， limited liability partnership or limited partnership stipulated by the Partnership Law， among which the limited liability partnership is only for the professional institutions such as law firms and accounting firms. Comparing with model a and b， model c seems more feasible and time-and-cost saving for the foreign partners. A complete due diligence will be conducted in order to minimize the risk from the operation of the domestic partnership before the participation date of the foreign partners. In consideration of the current administration and nature of the partnerships， lack of credibility and the other elements in China， it will be difficult to get a complete due diligence report satisfied with the foreign partners. Therefore， models a and b are highly recommended. Which model of a or b　take needs the consideration and balance of the foreign partners based on their business plan，　legal structuring， such as whether foreign partners themselves intend to do the business competing with the foreign partnership and how to exit by transferring the contribution in the partnership， ect.， and the thresholds discussed below.

　　Foreign Partners’ Qualification

　　The difference in the expression on the partners from overseas and China should be noted. Foreign partners only include foreign enterprises and individuals. The Chinese partners include Chinese individuals， legal persons and the other organizations. There is no unified legal interpretation on the “enterprise”， though mostly it refers to the profitable organizations. This uncertainty may come from the prudency of the legislator of China on the qualifications of foreign partners. Under article 184 of the Opinions of the Supreme People’s Court on Several Issues concerning the Implementation of the General Principles of the Civil Law of the People’s Republic of China for Trial [2](“the Opinions”)， this expression of “enterprise” on the foreign partners allow the SAIC local branch more discretion to judge whether the foreign partner is a qualified “enterprise” or not in accordance with the relevant Chinese laws. In this scenario， the foreign partners need to note that they should not fall into the types of entities prescribed in article 3 of the Partnership Law if they aim to be a general partner， which says that wholly state-funded company， state-owned company， listed company， public-welfare-oriented institution or social organization may not become a general partner.