Section 6 Specialized General Partnerships

Article 55 A professional entity that provides paid services to its clients with specialized knowledge and skills may form a specialized general partnership.

A specialized general partnership is a general partnership whose partners bear liability according to the provisions in Article 57 of this Law.

The provisions in this Section shall be applicable to specialized general partnerships; where for matters there are no provisions in this Section to govern, the provisions from Section 1 through 5 of this Chapter shall be applicable.

Article 56 The words “specialized general partnership” shall be included in the name of a specialized general partnership.

Article 57 Where a partnership incurs debts through the intentional acts or gross negligence on the part of one or more partners in business activities, he or they shall bear unlimited liability or unlimited joint and several liability, and the other partners shall bear limited liability based on the share of property they each have in the partnership.

All the partners of a partnership shall bear unlimited joint and several liability for the debts the partnership incurs not through the intentional acts or gross negligence on the part of a partner in his business activities and for the other debts incurred by the partnership.

Article 58 Where a partnership incurs debts due to a partner’s intentional acts or gross negligence in his business activities, after the debts are paid off with the property of the partnership, the said partner shall, in accordance with what is stipulated in the partnership agreement, be liable for the losses of the partnership.

Article 59 A specialized general partnership shall set up a fund against malpractice risks and purchase professional liability insurance.

The fund against malpractice risks shall be used for paying the debts incurred by partners in their business activities. A separate account for such fund shall be opened and be managed separately. The specific management measures shall be formulated by the State Council.

Chapter III

Limited Liability Partnerships

Article 60 The provisions of this Chapter shall be applicable to limited liability partnerships and their partners; where for matters there are no provisions in this Chapter to govern, the provisions governing general partnerships and their partners from Section 1 through 5 of Chapter II of this Law shall be applicable.

Article 61 A limited liability partnership shall be formed by not less than two but not more than fifty partners, unless otherwise provided for by law.

There shall be at least one general partner in a limited liability partnership.

Article 62 The words “limited liability partnership” shall be indicated in the name of a limited liability partnership.

Article 63 Apart from the ones proscribed in Article 18 of this Law, the partnership agreement shall include the following items:

(1) the names or titles and domiciles of the general partners and limited partners;

(2) the qualifications for the managing partners and the procedure for their selection;

(3) the limits of power of the managing partners and method for disposition of breaches of partnership agreement;

(4) the conditions for expelling a managing partner and the procedure for replacement;

(5) the conditions and procedure for entering into and retiring from the limited liability partnership, and the related liabilities; and

(6) the procedure for a limited partner to become a general partner, and vice versa.

Article 64 A limited partner may make capital contributions in cash or in kind, with intellectual property rights, land-use right, or other property rights, the values of which are assessed.

A limited partner shall not make capital contributions in the form of labor services.

Article 65 A limited partner shall make his capital contributions in full and on schedule, as are agreed upon in the partnership agreement; if he fails to do so, he shall be obligated to make up the difference and bear liability to the other partners for breach of agreement.

Article 66 Among the items to be registered by a limited liability partnership shall be included the names or titles of the limited partners and the amount of capital contributions subscribed for by each of them.

Article 67 The affairs of a limited liability partnership shall be managed by the general partners of the partnership. The managing partners may demand that payment for management of affairs and the way of drawing such payment be stipulated in the partnership agreement.

Article 68 A limited partner of a limited liability partnership shall not manage partnership affairs or represent the partnership in its relations with people outside the partnership.

The following acts of a limited partner shall not be deemed to be management of partnership affairs:

(1) to participate in deciding on a general partner’s entering into or retiring from the partnership;

(2) to raise suggestions concerning the operation and management of the partnership;

(3) to participate in the selection of a public accounting firm responsible for providing auditing services to the partnership;

(4) to obtain the audited financial statements of the partnership;

(5) where his personal interests are involved, to consult the financial materials of the partnership such as the accounting books;

(6) when his interests in the partnership are infringed upon, to claim his rights from the partners who are liable or to initiate a lawsuit;

(7) when the managing partners neglect to exercise their rights, to urge them to do so, or to initiate a lawsuit in his own name for the benefit of the partnership; and

(8) to provide guaranty for the partnership according to law.

Article 69 A limited liability partnership shall not distribute all the profits to part of the partners, unless otherwise stipulated in the partnership agreement.

Article 70 A limited partner of a limited liability partnership may conduct transactions with the partnership, unless otherwise stipulated in the partnership agreement.

Article 71 A limited partner of a limited liability partnership may, by himself or in cooperation with others, engage in business in competition with the partnership, unless otherwise stipulated in the partnership agreement.

Article 72 A limited partner may pledge his share of property in the limited liability partnership, unless otherwise stipulated in the partnership agreement.

Article 73 A limited partner may, in accordance with the partnership agreement, assign his share of property in the limited liability partnership to persons other than the partners of the partnership, provided that he notifies the other partners 30 day in advance.

Article 74 Where a limited partner’s personal property is insufficient to pay off his debts unrelated to the limited liability partnership, he may use his share of income from the limited liability partnership to pay off such debts; and the creditor may, according to law, request the people’s court to compulsorily execute the partner’s share of property in the limited liability partnership for payment.

Where a people’s court compulsorily executes the share of property of a limited partner in a limited liability partnership, it shall notify all the partners. Under equal conditions, the other partners shall have first priority to purchase the property in question.

Article 75 A limited liability partnership shall be dissolved when there are only limited partners left in the partnership; and it shall be transformed into a general partnership when there are only general partners left.

Article 76 Where a third party is justified in believing that a limited partner is a general partner and transacts a deal with him, the limited partner in question shall bear the same liability for the deal as a general partner does.

Where without authorization a limited partner transacts a deal with another person in the name of the limited liability partnership and thus causes losses to the partnership or other partners, the said partner shall be liable for the losses.

Article 77 A new limited partner shall, within the amount of the capital contributions subscribed for by him, be liable for the debts the limited liability partnership incurs prior to his entering into the partnership.

Article 78 A limited partner shall naturally retire from the partnership under any of the situations prescribed in Subparagraphs (1) and (3) through (5) of the first paragraph in Article 48 of this Law.

Article 79 When during the existence of a limited liability partnership, a limited partner who is a natural person loses the capacity for civil conduct, the other partners shall not demand that he retire from the partnership for that reason.

Article 80 When a limited partner who is a natural person is deceased or legally declared dead, or a limited partner which is a legal person or other organization is terminated, the successor or the successor in title may obtain the status of the aforementioned limited partner in the partnership according to law.

Article 81 After a limited partner retires from a limited liability partnership, he shall be liable, with the property he takes back from the limited liability partnership upon his retirement, for the debts the partnership comes to owe due to causes that arise prior to his retirement from the partnership.

Article 82 Unless otherwise stipulated in the partnership agreement, a general partner to become a limited partner or vice versa shall be subject to consent of all the partners.

Article 83 Where a limited partner becomes a general partner, he shall bear unlimited joint and several liability for the debts the partnership incurs during the period he is a limited partner.

Article 84 Where a general partner becomes a limited partner, he shall bear unlimited joint and several liability for the debts the partnership incurs during the period he is a general partner.

Chapter IV

Dissolution and Liquidation of a Partnership

Article 85 A partnership shall be dissolved in one of the following situations:

(1) At the expiration of the period of time for partnership, the partners decide not to continue operation;

(2) The cause for dissolution specified in the partnership agreement arises;

(3) All the partners decide to dissolve;

(4) The number of partners does not meet the statutory requirement for 30 days;

(5) The objectives of partnership specified in the partnership agreement have been achieved or it is impossible to achieve them;

(6) Its business license is revoked, or it is ordered to close down or is dissolved, according to law; or

(7) Other reasons provided for by laws or administrative regulations arise.

Article 86 Where a partnership is dissolved, it shall be liquidated by liquidators.

All of the partners shall serve as liquidators or, upon agreement by the majority of all the partners, one or more partners may be designated, or a third person may be authorized, to act as liquidators within 15 days after the cause for dissolution of the partnership arises.

Where no liquidators are decided on within 15 days after the cause for dissolution of the partnership arises, the partners or other interested parties may apply to a people’s court for designation of liquidators.

Article 87 During liquidation, a liquidator shall manage the following affairs:

(1) checking up on the property of the partnership and prepare a statement of assets and liabilities and an inventory of the property separately;

(2) dealing with the outstanding partnership affairs which are relevant to liquidation;

(3) paying off the taxes owed by the partnership;

(4) clearing up claims and debts;

(5) disposing of the residual property of the partnership after paying off the debts; and

(6) participating in proceedings or arbitrations on behalf of the partnership.

Article 88 A liquidator shall, within 10 days from the date a decision is made on his serving as such, notify the creditors of the intended dissolution of the partnership and shall make an announcement in a newspaper within 60 days. The creditors shall, within 30 days from the date they receive the notice, file their claims to the liquidator, and the creditors who fail to receive the notice shall do so within 45 days from the date the announcement is made.

When a creditor files a claim, he shall specify the matters related to the claim and provide the relevant document of proof. The liquidator shall register such a claim.

During the period of liquidation, the partnership shall remain in existence, however, it shall not engage in any business activities unrelated to liquidation.

Article 89 After payment with the partnership property of the liquidation expenses, the wages, social insurance premiums and statutory compensation of the employees and the taxes due and debts owed by the partnership, the residual property shall be distributed according to the provisions in the first paragraph of Article 33 of this Law.

Article 90 Upon conclusion of liquidation, the liquidator shall prepare a liquidation report and shall, after having it signed by, and affixed with the seals of, all the partners, submit it to the enterprise registration authority within 15 days and apply for cancellation of the registration of the partnership.

Article 91 After the registration of a partnership is cancelled, the former general partners shall still bear unlimited joint and several liability for the debts the partnership incurs during the period of its existence.

Article 92 Where a partnership is unable to pay off the debts due, its creditors may, according to law, apply to a people’s court for bankruptcy liquidation of the partnership, or demand that the general partners pay off such debts.

Where a partnership is declared bankrupt according to law, its general partners shall still bear unlimited joint and several liability for the debts of the partnership.

Chapter V

Legal Liability

Article 93 Where a partnership, 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 by the enterprise registration authority to make rectification and be fined not less than RMB 5,000 yuan but not more than 50,000 yuan; if the circumstances are serious, the registration of the partnership shall be revoked and it shall, in addition, be fined not less than 50,000 yuan but not more than 200,000 yuan.

Article 94 Where a partnership, in violation of the provisions of this Law, fails to include in its name such words as “general partnership” ,“specialized general partnership” or “limited liability partnership”, it shall be ordered by the enterprise registration authority to make rectification within a time limit and be fined not less than 2,000 yuan but not more than 10,000 yuan.

Article 95 Where an entity, in violation of the provisions of this Law, engages in partnership business in the name of a partnership or its branch without obtaining a business license, it shall be ordered by the enterprise registration authority to discontinue the business activities and be fined not less than 5,000 yuan but not more than 50,000 yuan.

Where a partnership fails to go through the procedures for altering its registration according to law when the registered items are altered, it shall be ordered by the enterprise registration authority to have the alterations registered within a time limit; if it fails to do so before the expiration of the prescribed time limit, it shall be fined not less than 2,000 yuan but not more than 20,000 yuan.

Where the managing partner of a partnership fails to apply on time for registering the alterations made by the partnership in its registered items, he shall be liable for the losses thus caused to the partnership, the other partners or a bona fide third party.

Article 96 Where a partner, when managing partnership affairs, or an employee of a partnership, by taking advantage of his position, takes into his own possession the interests that should go to the partnership or takes illegal possession of the property of the partnership by other means, he shall return such interests or property to the partnership; where he causes losses to the partnership or the other partners, he shall be liable for the losses according to law.

Article 97 Where a partner, without authorization, disposes of the affairs which may be managed by a partner only with the consent of all the partners as provided for in this Law or in the partnership agreement and thus causes losses to the partnership or the other partners, he shall be liable for the losses according to law.

Article 98 Where a partner who does not have the power to manage partnership affairs manages the affairs without authorization and thus causes losses to the partnership or the other partners, he shall be liable for the losses according to law.

Article 99 Where a partner, in violation of the provisions of this Law or of the partnership agreement, engages in business in competition with the partnership in which he is a partner or conduct business transactions with the said partnership, the income derived therefrom shall belong to the partnership; if he causes losses to the partnership or the other partners, he shall be liable for the losses according to law.

Article 100 Where a liquidator fails to submit a liquidation report to the enterprise registration authority according to the provisions of this Law, or conceals important facts or omits major information in the liquidation report submitted, he shall be ordered by the enterprise registration authority to make rectification. The expenses and losses thus entailed shall be borne by the liquidator.

Article 101 Where a liquidator, in managing the affairs of liquidation, obtains unlawful incomes or takes illegal possession of the property of the partnership, he shall return such incomes or property to the partnership; if he causes losses to the partnership or the other partners, he shall be liable for the losses according to law.

Article 102 Where a liquidator, in violation of the provisions of this Law, conceals or transfers the property of a partnership, or makes false records in the statement of assets and liabilities or the inventory of property, or distributes the partnership’s property before clearing off the debts, thus harming the interests of creditors, he shall be liable for compensation according to law.

Article 103 Where a partner violates the partnership agreement, he shall bear the liability for breach of agreement according 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 apply to an arbitration agency for arbitration in accordance with the arbitration clause contained in the partnership agreement or a written arbitration agreement concluded afterwards. If no arbitration clause is contained in the partnership agreement and no written arbitration agreement is concluded afterwards, they may bring a lawsuit in a people’s court.

Article 104 Where, in violation of the provisions of this Law, a staff member of an administrative department concerned abuses his power, engages in malpractices for selfish ends, receives or accepts bribes or infringes the lawful rights and interests of a partnership, he shall be given an administrative sanction according to law.

Article 105 Where a violation of the provisions of this Law constitutes a crime, criminal liability shall be investigated according to law.

Article 106 A person who violates the provisions of this Law and should bear civil liability for compensation and pay a fine or penalty and whose property is insufficient to pay the compensation and the fine or penalty at the same time, he shall bear civil liability for compensation first.

Chapter VI

Supplementary Provisions

Article 107 Where a specialized service entity which is not an enterprise adopts the system of partnership according to relevant laws, the provisions of this Law governing the liability to be borne by the partners of a specialized general partnership may be applied to the partners of such entity.

Article 108 The measures for administration of partnerships established within the territory of China by foreign enterprises or individuals shall be formulated by the State Council.

Article 109 This Law shall go into effect as of June 1, 2007.

The English translation is for reference only and if there is any discrepancy, the Chinese version shall prevail.