Chapter 3 Partnership

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Chapter 3 Partnership
1 Concept 2 Creation, alteration and
termination 3 Capacity and competence
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1 Concept

• For-profit association lawfully established
  within China pursuant to partnership agreement
  concluded by all partners, whereby the partners
  jointly contribute capital, jointly operate the
  business, jointly share in the incomes and the
  risks, and are jointly and severally liable for
  the debts of the partnership.

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Partnership and legal person
Partnership Legal person
Legal person status ? v
Perpetual existence ? v
Ownership of property Partners Legal person
Members liability Unlimited joint several liability Limited liability
Scale Small Big
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2 Creation, alteration and termination
2.1 Creation
2.1.1 Sufficient partners
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2.1.2 Written partnership agreement

• partnership name and address of its principal
  place of
• operation
• (2) the purpose and business scope of the
  partnership
• (3) the names and domiciles of the partners
• (4) the method for, amount of, and time limit
  for, making capital contribution by each partner
• (5) the method for profit distribution and loss
  allocation
• (6) execution of partnership affairs
• (7) participation and withdrawal from the
  partnership
• (8) dissolution and liquidation of the
  partnership
• (9) liability for breach of contract  

No illegal agreement Illustration Everet v
Williams (1725) Two highwaymen conspired
together to rob coach and share proceeds. One
sued the other for his share. Court decision N.
Illegal purpose.
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2.1.3 Actual capital contribution

• Like legal person, the property jointly
  contributed by partners is the material
  foundation of the partnership without which
  partnership cannot conduct its business. The
  partners are duty bound to contribute their share
  of capital to the partnership as per partnership
  agreement (Art.12, Partnership Law). In
  comparison with legal person, there is no minimal
  capital requirement for partnership and not
  necessarily all of them are paid in cash.
  Partners may make capital contribution in cash,
  tangible goods, land use rights, IP, or other
  property rights. The value of an item of capital
  contribution may be determined pursuant to
  agreement by partners, or submit to appraisal by
  legally designated appraisal agency appointed by
  all the partners. If partners have consensus,
  they may make capital contribution in the form of
  service (Art.11, Partnership Law).

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2.1.4 Partnership name

• The word partnership must
• No limited or limited liability
• No passing off
• Illustration

Day Martin, well-known boot polish maker. Two
people called Day and Martin set up as
partners making the same product intending to
divert business from the former well-known maker.
The established firm applied for injunction.
Court decision Injunction was granted.
2.1.5 Premises and the necessary conditions for
operation
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2.2 Alteration
2.2.1 Partner alteration

• 2.2.1.1 Admitting new partners

• Consent of all the existing partners
• Written partnership admission agreement

2.2.1.2 Withdrawal declared, statutory and
compulsory withdrawal
(1) Partnership with term, partners may withdraw

• withdrawal causes prescribed in the partnership
  agreement has
• occurred
• (b) withdrawal is consented by all partners
• (c) cause rendering the partner's continued
  participation in the
• partnership difficult has occurred
• (d) other partners have seriously breached their
  duties prescribed in the partnership agreement.

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(3) Compulsory withdrawal
(2) Partnership without term, partners may
withdraw
(a) death or declaration of death of partners
(b) declaration incompetent of partners (c)
partners become personally insolvent (d) all of
the partner's share of property in partnership
has been enforced by the people's courts.

• partners fail to fulfill their obligations in
  respect of making
• capital contribution
• (b) partners have caused loss to the partnership
  due to their willful misconduct or gross
  negligence
• (c) partners engage in improper conduct while
  conducting partnership affairs
• (d) other causes specified in the partnership
  agreement.

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2.2.2 Partnership form alteration

• change of the number of partners
• convert partnership into sole proprietorship or
  LLC or CLS

2.2.3 Other alterations in partnership
agreement
scope of business, manners of partnership
business execution, methods and amount of capital
contribution, and methods of risks and profits
sharing
2.3 Termination
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• 2.3.1 Causes for dissolution

• The partnership term prescribed by the
  partnership greement has expired and the partners
  are unwilling to continue the peration of the
  partnership
• (2) Dissolution causes stipulated in the
  partnership has occurred
• (3) All partners decide to dissolve the
  partnership
• (4) The number of partners no longer meets legal
  requirement
• (5) The partnership purpose prescribed by
  partnership agreement has been accomplished, or
  is not capable of being accomplished
• (6) The business license of the partnership is
  revoked in accordance with the law
• (7) Any other cause for dissolution of the
  partnership as stipulated by law or
  administrative regulations has occurred.

2.3.2 Liquidation is a must for dissolution
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3 Capacity and competence

• 3.1 Concept
• Scope of partnership capacity and competence
  the same.
•  
• 3.2 Property basis

• Partnership property material foundation.
• Such properties capital contribution income
  received
• They are common property of the partners and
  subject to
• joint management

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3.3 Exercise of partnership competence

• Each partner enjoy equal rights with respect to
  the conduct of partnership affairs
• Partnership affairs jointly by all partners, or
  one or more partners so appointed  

• Unanimous agreement, must

(1) disposition of any real property of the
partnership (2) change of partnership name (3)
transfer or disposal of IP or other property
rights of partnership (4) application to the
enterprise registration authority for alteration
registration (5) provision of security
for others in the name of the partnership (6)
appointment of non-partners as managerial
personnel (7) the relevant matters set forth in
the partnership agreement.
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3.4 Liability

• Partnership property and partners property
  bear partnership liability.
• All partners are jointly and severally liable
  for partnership liability.

Illustration Zhong Hongs claim of limited
liability rejected
In August 1990, four persons i.e. Zhang Gui, Ding
Bao, Lu Quan and Zhao Hong executed a partnership
agreement, in which the former three persons were
participating partners each contributing RMB2000
to the partnership and Zhao Hong was
non-participating partner contributing RMB30000
to the partnership. All partners should equally
share the profits, but only the former three
should equally assume the loss of the firm, and
Zhang Hongs maximum liability toward the firm
was confined to his total contribution in the
firm. In July 1991 the firm ran very well and
each partner obtained their respective share of
profits. From August 1991 the firm owed Li
Xingguo RMB1200 and was unable to repay it due to
heavy losses resulting from a plague. Li Xingguo
requested the former three partners to repay the
debt and recovered nothing from them since they
were unable to pay. Later on Li Xingguo found
that Zhao Hong was also the partner, thus asked
him to repay the debt. Zhao Hong refused to pay
claiming that his liability was limited to his
contribution and he should not be personally
liable for the firms liability. Li Xingguo sued
before the court, which held that Zhao Hong as
the firms partner should be personally liable
for the firms debt, thus ordered him to repay
such debt.