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TABLE OF CONTENTS CHAPTER I GENERAL PROVISIONS CHAPTER II ESTABLISHEMENT OF A PARTNERSHIP ENTERPRISE CHAPTER III PROPERTY OF A PARTNERSHIP ENTERPRISE CHAPTER IV MANAGEMENT OF THE AFFAIRS OF A PARTNERSHIP ENTERPRISES CHAPTER V RELATIONSHIP OF A PARTNERSHIP ENTERPRISE TO A THIRD PARTY CHAPTER VI ENTERING INTO AND RETIRING FROM A PARTNERSHIP CHAPTER VII DISSOLUTION AND LIQUIDATION OF A PARTNERSHIP ENTERPRISE CHAPTER VIII LEGAL LIABILITY CHAPTER IX SUPPLEMENTARY PROVISIONS CHAPTER I GENERAL PROVISIONS Article 1 This Law is formulated for the purposes of standardizing the behavior of partnership businesses and protecting the legitimate rights and interests of those businesses and their partners and thus to safeguard the social and economic order, and promote the development of the socialist market economy. Article 2 A partnership business referred to in this Law shall be any business set up by partners within the Chinese territory according to this Law with contributions by all the partners thereof through signing up of an agreement as well as a joint sharing of all the partners of the operations, incomes, risks, and unlimited liabilities of the business. Article 3 The agreement for a business concerned shall be made in a written form according to the law upon full agreement of all partners thereof through consultations. Article 4 The principles of voluntariness, equality, fairness, sincerity and creditability shall be followed for the creation of a partnership business and formulation of the agreement thereof. Article 5 A partnership business in not permitted to use such words as "limited" or "limited liability" in its title. Article 6 A partnership business must abide by laws, administrative regulations and professional ethics in its operations. Article 7 The property and legitimate rights and interests of a partnership business and its partners shall enjoy legal protection. CHAPTER II ESTABLISHMENT OF A PARTNERSHIP ENTERPRISE Article 8 To establish a partnership enterprise, the following conditions shall be met: (1) having tow or more partners who shall each bear unlimited liabilities according to law; (2) having a written partnership agreement; (3) having capital actually contributed by all the partners; (4) having a name for the partnership enterprise; and (5) having premises for business and the necessary conditions for joint operations. Article 9 A partner shall be a person who has full capacity for civil acts. Article 10 A person who is prohibited by laws or administrative rules and regulations to engage in profit-making activities shall not become a partner in a partnership enterprise. Article 11 A partner may make capital contributions in cash or in kind, or in the form of land-use right, intellectual property rights or other property rights; the contributions mentioned above shall be the lawful property or property rights of the partners. Subject to agreement reached by all the partners through consultation, a partner may make capital contributions in the form of labour service, and the method of assessment shall be determined by all the partners through consultation. Article 12 A partner shall fulfill the obligation of capital contribution in accordance with the mode, amount and time limit for contribution as specified in the partnership agreement. The capital actually contributed by each partner according to the partnership agreement shall be his capital contribution to the partnership enterprise. Article 13 In a partnership agreement, the following particulars shall be specified: (1) the name of the partnership enterprise and the location of its principal premises for business; (2) the objectives of partnership and the scope of business of the partnership enterprise; (3) the names and domiciles of the partners; (4) the mode, amount and time limit for capital contributions of the partners; (5) the way of distributing profits and sharing losses; (6) the management of the affairs of the partnership enterprise; (7) the entering into and retiring from the partnership; (8) the dissolution and liquidation of the partnership enterprise; and (9) the liability for breech of agreement. The operation period of the partnership enterprise and the way of resolving disputes among the partners therein may be specified in the partnership agreement. Article 14 A partnership agreement shall become effective after all the partners have signed or affixed their seals to it. A partner shall enjoy rights and undertake liabilities in accordance with the partnership agreement. Subject to agreement reached by all the partners through consultation, the partnership agreement may be amended or supplemented. Article 15 Where anyone applies for registration of a partnership enterprise, he shall submit to the enterprise registration authority such documents as an application for registration, the partnership agreement and identity papers of the partners. Where examination and approval by relevant departments are needed as prescribed by laws or administrative rules and regulations, documents of approval shall be submitted at the time when application is made for registration of establishment of the enterprise. Article 16 The enterprise registration authority shall, within 30 days from the date of receiving the documents of application for registration, decide whether to make the registration or not. Where the conditions prescribed by this law are satisfied, the registration shall be made and a business license issued; otherwise, the registration shall not be made and a written reply stating the reasons shall be given. Article 17 The date of issuance of the business license to a partnership enterprise shall be the date of establishment of the enterprise. Before the partnership enterprise obtains the business license, no partner therein shall engage in business activities in the name of the enterprise. Article 18 If a partnership enterprise wishes to set up a branch, it shall apply for registration to the enterprise registration authority in the place where the branch is to be located and shall have to obtain a business license. CHAPTER III PROPERTY OF A PARTNERSHIP ENTERPRISE Article 19 During the term of operation of a partnership business, the capital contributions by its partners and all incomes obtained in the name of the partnership business shall all be property of the partnership business. Property of a partnership business should be put under the joint management and uses of all partners according to this Law. Article 20 Before the liquidation of a partnership business, partners concerned are not permitted to request for distribution of the property thereof except for cases as provided separately by this Law Secret transference or uses of property of a partnership business by a partner before the liquidation of the business should not be made in counter to the interest of an uninformed bona fide third party. Article 21 An unanimous agreement from other partners must be obtained before a partner of a partnership business transfers to a party other than the partners of the business concerned all or part of the share thereof during the term of operation of the business. For such a transference, a notice should be given to all partners of the business. Article 22 Whenever a transference by a partner of a partnership business his/her share thereof according to the law, the other partners concerned shall enjoy the priority for assignment under the same conditions. Article 23 A new party other than all partners of a partnership business shall become a new partner of the business after acquiring a share of the said business as transferred by a partner thereof under a unanimous agreement of all partners of the business according to law and thereto upon a revision to the partnership agreement, enjoy the rights and be responsible for the liabilities of the business according to the revised partnership agreement. Article 24 The use of property share in a partnership business by a partner thereof as a pledge should acquire in advance an unanimous agreement from other partners concerned. Use of property share in a partnership business by a partner as a pledge without a unanimous agreement from other partners shall be considered invalid or as withdrawal of the partner from the partnership; and the latter shall take responsibility for the compensation if the act thereupon causes any loss to other partners according to the law. CHAPTER IV MANAGEMENT OF THE AFFAIRS OF A PARTNERSHIP ENTERPRISE Article 25 All partners shall enjoy equal right in the management of the affairs of a partnership enterprise. Such affairs may be managed jointly by all the partners or by one or more partners authorized upon the partnership agreement reached or decision made by all the partners. The partners who manage the affairs of a partnership enterprise shall represent the enterprise in its relations with people outside the enterprise. Article 26 Once one or more partners are authorized to manage the affairs of a partnership enterprise as provided for in the preceding paragraph, the other partners shall stop managing the affairs of the enterprise. The partners not participating in the management of the affairs of the enterprise shall have the right to supervise the partners who manage the affairs and to inspect their management. Article 27 Where one or more partners manage the affairs of a partnership enterprise, he or they shall, as agreed, report the state of management and business operations and the financial status to the partners not participating in the management, the income derived from the management of the affairs of the partnership enterprise shall belong to all the partners, and the losses or civil liabilities incurred shall be born by all the partners. Article 28 Partners shall have the right to check the accounting books in order to become acquainted with the state of business operations and the financial status of the partnership enterprise. When the partners wish to adopt a resolution, according to law or the partnership agreement, on matters relating to the enterprise, the method that one person has one vote may be used, if so decided by all the partners, unless otherwise provided for in this law or stipulated in the partnership agreement. Article 29 Where, as stipulated by the partnership agreement or decided by all the partners, the partners share the management of the affairs of the partnership enterprise, any partners may raise objections to the management done by others. In that event, the management of the affairs in question shall be suspended. If any dispute arises, the matter may be decided by all the partners. Where a partner authorized to manage the affairs of a partnership enterprise fails to do it according to the partnership agreement reached or decision made by all the partners, the other partners may decide to cancel the authorization. Article 30 No partner may, by himself or through cooperation with another, engage in business in competition with the partnership enterprise in which he is a partner. No partner may conduct business transactions with the partnership enterprise in which he is a pattern, unless otherwise provided for in the partnership agreement or all the partners so consent. No partner may engage in any activities that harm the interests of the partnership enterprise in which he is a partner. Article 31 The following matters relating to a partnership enterprise shall be subject to consent of all the partners: (1) disposal of the immovables of the partnership enterprise; (2) alteration of the name of the partnership enterprise; (3) assignment or disposal of the intellectual property rights or other property rights of the partnership enterprise; (4) application for modification of registration to the enterprise registration authority; (5) provision of guaranty for another in the name of the partnership enterprise; (6) appointment of person other than the partners as managers of the partnership enterprise; and (7) other related matters as specified in the partnership agreement. Article 32 The profits and losses of a partnership enterprise shall be distributed among and born by the partners according to the proportions specified in the partnership agreement; in the absence of such proportions, the profits or losses shall be equally shared by all the partners. A partnership agreement may not stipulate that all the profits are distributed among part of the partners or all the losses are born by part of the partners. Article 33 During the period of existence of a partnership enterprise, a partner may, in conformity with the partnership agreement or decision by all the partners, increase his capital contributions to the enterprise for the purpose of expanding the scope of business or making up for the losses. Article 34 Specific plans for distribution of profits or bearing of losses annually or for a fixed period of time shall be decided by all the partners through consultation or by the method stipulated in the partnership agreement. Article 35 The managers appointed by a partnership enterprise shall fulfill their duties within the scope of power authorized by the enterprise. Where a manager appointed by a partnership enterprise causes losses by engaging in business activities beyond the scope of power authorized by the enterprise, or by intentional action or through gross negligence, he shall be liable for compensation according to law. Article 36 A partnership enterprise shall establish financial and accounting systems for the enterprise in accordance with the provisions of laws and administrative rules and regulations. Article 37 A partnership enterprise shall fulfill its obligation to pay taxes in accordance with law. CHAPTER V RELATIONSHIP OF A PARTNERSHIP ENTERPRISE TO A THIRD PARTY Article 38 A partnership enterprise may not use restrictions, which it places on the right of the partners to manage the affairs of the enterprise and to represent the enterprise in its relations with people outside the enterprise, against an ignorant bona fide third party. Article 39 A partnership enterprise shall first pay off its debts with all of its property. If its property is not sufficient to cover the debts due, each partner shall bear unlimited joint and several liability for paying off the debts. Article 40 Where the property of a partnership enterprise is used to clear off its debts, the difference shall be made up by the partners with their property other than their capital contributions to the enterprise on the basis of the proportions specified in the first paragraph of Article 32 of this Law. If the amount of debts paid off by a partner, due to his joint and several liability, exceeds the amount he should bear, he shall have the right to claim recovery from the other partners. Article 41 The creditor of a partner in a partnership enterprise may not offset his debts toward the enterprise with his claim against the partner. Article 42 Where a partner is personally in debt, his creditor may not exercise by subrogation the right enjoyed by the partner in the partnership enterprise. Article 43 Where a partner¡¯s personal property is not sufficient to pay off his personal debts, he may only use the proceeds distributed to him by the partnership enterprise to clear off his debts; the creditor, on his part, may, according to law, apply to a People¡¯s Court for execution of the partner¡¯s share of property in the partnership enterprise for the purpose. Other partners shall enjoy priority in obtaining assignment of the partner¡¯s share of property. CHAPTER VI ENTERING AND RETIRING FROM A PARTNERSHIP Article 44 Where a person enters into an existing partnership, he shall have to obtain consent of all the partners and a written agreement for entering into the partnership shall be concluded according to law. When concluding the agreement for entering into the partnership, the existing partners shall make known to the new partner of the state of business operations and the financial status of the partnership enterprise. Article 45 The new partner shall enjoy the same right and bear the same liability as the old partners, unless otherwise provided for in the agreement for entering into the partnership. The new partner shall be jointly and severally liable for the debts incurred by the partnership enterprise before he entered into the partnership. Article 46 Where the period of operation of a partnership enterprise is specified in a partnership agreement, a partner may retire from the partnership under any of the following situations: (1) The cause for retiring stipulated in the partnership agreement arises; (2) The partner has obtained consent of all the partners for retirement; (3) The situation in which the partner finds it difficult to remain in the partnership enterprise arises; or (4) Other partners seriously violate the partnership agreement in terms of their obligations. Article 47 Where the period of operation of a partnership enterprise is not specified in a partnership agreement, a partner may retire from the partnership provided that his retirement will not adversely affect the management of the enterprise¡¯s affairs, however, he shall notify the other partners 30 days in advance. Article 48 If a partner retires from the partnership against the provisions of the preceding two Articles, he shall compensate the losses thus caused to the other partners. Article 49 A partner shall, under any of the following situations, naturally retire from the partnership: (1) He is deceased or is legally declared dead; (2) He is legally declared a person with no capacity for civil acts; (3) He becomes unable to clear off his debts; or (5) His total share of property in the partnership enterprise is executed by a People¡¯s Court. The retirement provided in the preceding paragraph takes effect on the day the situation actually arises. Article 50 A partner may, under any of the following conditions, be expelled by a resolution unanimously adopted by the other partners: (1) failing to perform the obligation for capital contributions; (2) causing loss to the partnership business for intentional or major fault; (3) having unfair behavior in executing affairs of the partnership business; and (4) other causes as set in the partnership agreement. The resolution to dismiss a partner should be sent in a notice in writing to the person who is dismissed. The dismission shall take effect on the date on which the person who is dismissed receives the dismission notice, and the person who is dismissed shall withdraw from partnership. Whereas the person who is dismissed has any opposition to the dismission resolution, legal proceedings may be instituted with be people's court within thirty days after receipt of the dismission notice. Article 51 Whereas a partner is dead and declared according to the law as being dead, the heir who enjoys the legitimate right of inheriting the said partner's property share in a partnership business shall as set in the partnership agreement or with agreement of all partners obtain the qualification for being a partner of the said partnership business as of the date of succession. Whereas the said heir refuses to be a partner, the partnership business should reimburse to the heir the respective share of the inherited property. Whereas a legitimate heir has not become mature, a guardian may with unanimous agreement of other partners subrogate the rights of the said heir before the latter becomes mature. Article 52 Whereas a partner wihtdraws from partnership, other partners shall conduct settlement with the said partner in accordance with the property conditions of the partnership business at the time of the withdrawal, and return the property share of the withdrawing partner. Whereas some affairs of the partnership business fail to be settled at the time of the withdrawal, the property share shall be settled after the affairs are settled. Article 53 The methods of refunding the property share of a withdrawing partner in a partnership business shall be set in the partnership agreement or determined by all partners. The refunding may be in cash or in kind. Article 54 A withdrawing partner should together with other partners shoulder joint liabilities for the debts of the partnership business occurred before the said withdrawal. Article 55 Whereas the property of a partnership business is less than the debts of the said business when a partner withdraws from partnership, the withdrawing partner should share the loss according to the provisions in the first paragraph of Article 32 of this Law. Article 56 Whereas the registration matters of a partnership business change or re-registration is necessary for such reason as withdrawal from partnership, admission to partnership of revision of the partnership agreement, the said partnership business should handle relevant registration procedures with the business registration authority within fifteen days as of the date on which the decision for the change is made or the cause for the change takes place. CHAPTER VII DISBANDMENT AND LIQUIDATION OF PARTNERSHIP BUSINESS Article 57 A partnership business shall disband in any of the following cases: (1) the term of operation as set in the partnership agreement expires and the partners are unwilling to continue the operation; (2) a cause for disbandment as set in the partnership agreement appears; (3) all partners decide to disband; (4) there is an insufficient number of partners as provided for by the Law; (5) the purpose for partnership as set in the partnership agreement has been finalized or is not able to be realized; (6) the business license is revoked according to the law; and (7) other reasons for disbandment of a partnership business as provided for by the law and administrative regulations appear. Article 58 A partnership business shall after disbandment conduct liquidation and inform its creditors in notice or announcement thereof. Article 59 Whereas a partnership business disbands, the liquidators shall be acted by all partners; whereas not all partners are able to act as the liquidators, one or several partners, or a third party may with agreement of more than half of the partners be designated or entrusted to act as the liquidators within fifteen days after the partnership business disbands. Whereas the liquidators are not determined within the fifteen days, the partners or other interested parties may request the people's court to designate the liquidators. Article 60 The liquidators shall execute the following affairs during the period of liquidation: (1) to sort out the property of the partnership business, and draft up the balance sheets and the property list of the said business; (2) to handle unsettled affairs of the partnership business that are related to the liquidation; (3) to pay up taxes payable; (4) to settle credits and debts; (5) to handle the remaining property after the partnership business repays its debts; and (6) to take part in civil suits on behalf of the partnership business. Article 61 After the liquidation expenses are paid, the property of the partnership business shall be distributed in the following order: (1) wages and labor insurance costs owed by the partnership business to its employees; (2) taxes payable by the partnership business; (3) debts of the partnership business; and (4) returning capital contributions to the partners. Whereas there is a surplus after the property of the partnership business is distributed in the above-mentioned order, it shall be distributed according to the proportion as provided for in the first paragraph of Article 32 of this Law. Article 62 Whereas all property of a partnership business is insufficient for paying its debts, it shall be handled according to Article 39 and Article 40 of this Law. Article 63 After a partnership business disbands, the original partners shall still shoulder joint liabilities for the debts in the duration of existence of the partnership business. But the said liabilities shall be eliminated if the creditors fail to ask for repayment from the debates within five years. Article 64 After the liquidation ends, a liquidation report shall be made, and it shall after the signing and sealing of all partners be sent to the business registration authority within fifteen days to register the cancellation of the partnership business. CHAPTER VIII LEGAL LIABILITY Article 65 Where an enterprise, in violation of the provisions of this Law, obtains its registration by submitting falsified documents or resorting to other fraudulent means, it shall be ordered to make rectification and may be fined not more than 5,000 yuan; if the case is serious, the registration of the enterprise shall be revoked. Article 66 Whoever, in violation of the provision of this Law, indicates the words ¡°limited¡± or ¡°limited liability¡± in the name of a partnership enterprise shall be ordered to make rectification within a time limit and may be punished with a fine of not more than 2,000 yuan. Article 67 Whoever, in violation of the provisions of this Law, engage in business activities in the name of a partnership enterprise without obtaining a business license according to law shall be ordered to stop the business activities and may be punished with a fine of not more than 5,000 yuan. Where a partnership enterprise fails to go through the procedures for changing its registration when the registered particulars are modified, it shall be ordered to have the modifications registered within a time limit; if it fails to do so before expiration of the time limit, it shall be punished with a fine of not more than 2,000 yuan. Article 68 Where a partner, in his management of the affairs of the partnership enterprise, takes into his own possession the interests that should go to the partnership enterprise or seizes the property of the partnership enterprise by other means, he shall be ordered to return such interests and property to the partnership enterprise; if he causes losses to the partnership enterprise or other partners, he shall be liable for compensation according to law; if a crime is constituted, criminal responsibility shall be investigated in accordance with law. Article 69 Where a partner manages without authorization, the affairs which may be managed by a partner only with the consent of all the partners as provided for in this Law or the partnership agreement and thus causes losses to the partnership enterprise or other partners, he shall be liable for compensation in accordance with law. Article 70 Where a partner who does not have the power to manage the affairs of the partnership enterprise manages the affairs without authorization and thus causes losses to the enterprise or other partners, he shall be liable for compensation in accordance with law. Article 71 Where a partner, in violation of the provisions of Article 30 of this Law, engages in business in competition with the partnership enterprise in which he is a partner or conducts business transactions with the partnership enterprise in which he is a partner and thus causes losses to the enterprise or other partners, he shall be liable for compensation in accordance with law. Article 72 Where an employee of a partnership enterprise, by taking advantage of his post, unlawfully takes into his possession the property or things of value of the enterprise or appropriates the funds of the enterprise for personal use, he shall bear civil liability according to law; if a crime is constituted, criminal responsibility shall be investigated in accordance with law. Article 73 Where a liquidator fails to submit a liquidation report to the enterprise registration authority in accordance with the provisions of this Law, or submits a liquidation report but conceals important facts or omits major information, he shall be ordered to make rectification. Article 74 Where a partner who serves as a liquidator seeks unlawful earnings or seizes the property of the partnership enterprise while managing the affairs of liquidation, he shall be ordered to return such earnings or seized property to the enterprise; if a crime is constituted, criminal responsibility shall be investigated in accordance with law. Where a liquidator entrusted by the partners commits the acts mentioned in the preceding paragraph, he shall be ordered to return such earnings or seized property to the partnership enterprise and be liable for compensation in accordance with law; if a crime is constituted, criminal responsibility shall be investigated in accordance with law. Article 75 Where a liquidator, in violation of the provisions of this law, conceals or transfers the property of the partnership enterprise, or makes false records in the statement or assets and liabilities or the inventory of property, or distributes the enterprise¡¯s property before clearing off the debts, he shall be ordered to make rectification; if the interests of the creditors are harmed, he shall be liable for compensation in accordance with law; if a crime is constituted, criminal responsibility shall be investigated in accordance with law. Article 76 Where a partner violates the partnership agreement, he shall bear the liability for breach of agreement in accordance with law. Where a dispute arises among the partners over the execution of the partnership agreement, the partners may settle it through consultation or mediation. If they are unwilling to do so or if consultation or mediation proves unsuccessful, they may submit it to an arbitration agency for arbitration in accordance with the arbitration clause contained in the partnership agreement or a written arbitration agreement and no written arbitration agreement is concluded afterwards, they may bring a suit in a People¡¯s Court. Article 77 Where any relevant administrative departments or their staff members, in violation of the provisions of this Law, abuse their power, engage in malpractices for selfish ends, take bribes and encroach upon the lawful rights and interests of a partnership enterprise, they shall be given administrative sanctions according to law; if a crime is constituted, criminal responsibility shall be investigated in accordance with law. CHAPTER IX SUPPLEMENTARY PROVISIONS Article 78 This law shall go into effect as August 1, 1997. |
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