Limited Liability Partnerships: The Best Structure for Funds?

By James Weng and Tomy Xia

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The Partnership Enterprise Law of the People's Republic of China (Partnership Enterprise Law, or PEL) has been in force since June 1 2007. This legislation provided a legal cornerstone for the formation of PRC domestic private funds. Following the implementation of the PEL, the limited partnership, a common structure in international practice in fund formation, will become a feasible choice for domestic private funds. Fund demand has increased in many industries, such as transportation, energy and environmental protection. Although China's domestic market is full of free capital as well as expertise in investment management, there are not enough investment vehicles. The limited partnership, which offers a good mechanism for combination of capital and expertise, which are the two core elements for private equity operation, is widely expected to promote the development of domestic private funds in China.