Hainan Company Formation (FIPE)

Hainan company formation (FIPE) refers to establish a foreign invested partnership enterprise in Hainan. FIPE which stands for foreign invested partnership enterprise is an unlimited liability business entity set up by more than 2 (including 2) foreign enterprises or individuals; or by foreign enterprises or individuals and Chinese individual, legal person and other organizations within the territory of China. The following are the basics of a FIPE in China.

Advantages of FIPEs
(1) No requirements on minimum registered capital;
(2) The procedure requirements for setting up a FIPE is relatively easy compared to wholly foreign owned enterprise (WFOE) or joint venture (JV);
(3) RMB profits are freely repatriable;
(4) FIPEs allow Chinese nationals or more appropriately, natural persons, enter into partnerships with foreign enterprises or individuals;
(5) Unlike LLC in which profits are shared based on the proportion of shares held by the shareholders, the distribution of the profits or losses in a FIPE can be negotiated between the partners via a partnership agreement irrespective of the capital contribution.

Features of FIPEs
(1) It is an entity that endows unlimited liability on the partners.
(2) There is no minimum capital required for setting up this entity.
(3) A partnership can be established between two or more natural persons or legal persons that includes both privately owned enterprises and state-owned enterprises.
(4) There are no restrictions on the nationality of the partners; foreigners or Chinese can become partners in a FIPE.
(5) Terms of 15 to 30 years are typical for a FIPE. It is also possible to obtain extensions of the FIPE’s duration.

Types of FIPEs
1. Limited Partnership Enterprise (LPE)
A limited partnership enterprise is formed by a combination of general partners and limited partners where the limited partners bear the liabilities for the partnership's debts to the extent of their capital contributions.

2. General Partnership Enterprise (GPE)
A general partnership enterprise may be formed by general partners who bear unlimited joint and several liability for the debts of the partnership. The general partners share unlimited liabilities for the debt of the partnership.

3. Special General Partnership Enterprise (SGP)
A special general partnership enterprise resembles a general partnership except that it must be a professional service institution offering services requiring professional knowledge and special skills.

Procedures for FIPE Registration
Foreign investors are not allowed to directly submit the application documents of the incorporation of a FIPE to the relevant authority in China. They must retain a PRC entity that is authorized or permitted by relevant authorities to act as a sponsor.

Name approval must be obtained from the State Administration for Industry & Commerce (SAIC) prior to registration and the name should contain LLP in the case of Limited Partnerships. Leasing of office space must be secured prior to registration. One application form and one set of application materials can be submitted to an application terminal at the local AIC.

A FIPE comes into existence legally with the issuance of the Business License. Subsequently, the FIPE must obtain its official seal from the local Public Security Bureau (PSB), open a corporate banking account and register for VAT. The FIPE must also obtain relevant sector-related licenses where applicable.

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