The Advantages of Establishing a PE

• No corporate income tax for partnership enterprise;
• No requirements on minimum registered capital;
• Fewer procedures comparing with Wholly Foreign Owned Enterprise or Joint Venture
• The capability of converting RMB profits to US dollars for remittance to its parent company outside of China;
• Foreign Enterprise or Individual is allowed to establish a Partnership Enterprise with Chinese individual (While Chinese individual is not allowed to have Joint Venture with a foreign investor)
• The profit distribution of a PE could follow an informal negotiated agreement or abide by the scheme adopted in the partnership agreement (While for LLC, profit distributions is according to the percentage of investment of shareholders)

The Disadvantages of Establishing a PE

• Unlimited liability; A partnership must pay all its debts with property contributed to the partnership by the partners. If the partnership is a general partnership then the partners bear joint and several liabilities;
• Limited business names options: Can’t have a business name with “Company” in it, eg, can’t have name lie XYZ Co., or XYZ Co., Ltd. and could only choose names like XYZ Firm (PE), XYZ center (PE)
• Property rights of partnership enterprise are difficult to be transferred to a third party as according to the Partnership Enterprise Law: the property rights of partnership transfer MUST be agreed by all partners in a PE;
• China has not adopted Natural Person’s Bankruptcy system, the credibility of the partners would be hard to maintain if PE involves into a hard situation
• As for the trading business of a PE, since PE is not a general taxpayer, PE can’t get VAT status, and can’t apply for VAT rebate accordingly