THE LIMITED PARTNERSHIP IN CHINA: AN EVALUATION

Abstract

This PhD thesis is a result of the author¿s research on the limited partnership in the context of China. This thesis investigates the fundamental theoretical and practical problems within China¿s limited partnership regime from doctrinal, comparative and empirical perspectives. This thesis attempts to fill the legislative gaps and seeks to provide recommendations for future law reform of the limited partnership. This thesis concludes that the PRC Partnership Enterprise Law has furnished basic provisions on the limited partnership structure. However, the existing structural, cultural and regulatory problems undermine the attractiveness and creditworthiness of the limited partnership regime. This thesis is organized in three parts. Part I examines the evolution of Chinese partnership and partnership law. It concludes that the law of partnership was developed in a piecemeal way in China. The PRC limited partnership is a mixture of western and Chinese models. This part identifies various problems in the context of private equity limited partnerships. In particular, there are severe conflicts of interest between limited partners and general partners. It argues that the PRC Partnership Enterprise Law fails to provide sufficient legal protection to Chinese limited partners. This legislative deficiency may undermine the limited partnership structure in controlling agency costs. Part II of this thesis examines the three basic themes underlying the internal relationships of the limited partnership regime in the context of China. It concludes that although the control rule has once been a useful device in deterring limited partners¿ meddling into the management of the firm, there is little reason to believe that it continues to be effective in China. It suggests that default legal duties shall be imposed on general partners. It argues that compared to other intra-partnership dispute resolutions for restricting agency problem, the derivative action is more effective since it has strong deterrent and compensation functions. PART III emphasizes the essential role of organizational law in regulating the external relationships between partnerships and their outsiders, specifically in regulating the liability shield of limited partners and creditors¿ rights with partnerships. This part suggests that whether a strong or weak entity shielding should be adopted in the PRC limited partnership depends on the real business needs of its potential users. Considering that the limited partnership is commonly structured as an asset-pooling vehicle in China, a stronger entity shielding shall be adopted. Given the legislative objective of the limited partnership, it is suggested that a complete owner shielding to limited partners shall be provided. This attribute affords a high degree of protection to limited partners against partnerships¿ creditors. The conclusion chapter suggests that, to make the limited partnership achieve its legislative goal, it is necessary to promote a well-established venture capital market and a business-friendly regulatory environment. Meanwhile, it is pertinent to review on a regular basis the rules on the limited partnership ¿ in tandem with the developments of the venture capital market ¿ so as to meet rapidly-changing business needs as well as to balance the interests of the different parties involved.