Recent PRC Partnership Law Amendments: Domestic Changes Significant—Little Immediate Impact Seen on Foreign Private Equity Investment

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Taking an important step towards a more pro-investment corporate law, China amended its Partnership Enterprise Law«????????????» (“Partnership Law”) on August 27,

2006. The amended Partnership Law, which took effect on June 1, 2007, significantly alters existing partnership rules and principles established under the original Partnership Law enacted a decade earlier. While the Partnership Law governs domestic partnership enterprises, based on Article 108 of the Partnership Law, the PRC government has specifically contemplated foreign investment in PRC partnerships. In accordance with Article 108, the Ministry of Commerce (“MOFCOM”) drafted the Foreign Investment Partnership Regulations«???????????? (???)»(“FIPR”) and circulated it to other governmental agencies for comments on January 25, 2007. The FIPR is

currently still in its drafting stage, but we can expect to see the new regulation promulgated soon. As

with any new PRC regulation, there are a number of questions raised by the draft. The FIPR and the

Partnership Law may in the future provide foreign investors with an alternative structure through which they may raise funds for investment into PRC enterprises. Many uncertainties have been raised about certain provisions incompatible with the operation of foreign private equity funds. These initial concerns seem to indicate that, if the FIPR is promulgated as drafted, the immediate impact of

the FIPR on foreign private equity investment will be negligible. This update provides a brief overview of the significant amendments to the Partnership Law and the provisions of the draft FIPR.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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