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Normally, the foreign partner will receive a greater share of the profits made by the venture during the term of contract, and the Chinese partner will be entitled to all the assets at the end of the contractual term. Art. 22 of the Cooperative Joint-Venture Law provides that the joint-venture contract may prescribe ways for the foreign partner to recover its share of the investment during the term of cooperation if ownership of all the fixed assets is to revert to the Chinese partner upon the expiry of the term. If this recovery is to take place before payment of income tax, the foreign partner must apply to the tax authorities for approval.
No shares can be issued by non-corporate cooperative joint ventures. Rights and obligations of the parties are governed by the joint-venture contract.
Similar rules apply to equity joint ventures and cooperative joint ventures. See
Art. 12 of the Cooperative Joint-Venture Law provides that a cooperative joint venture must set up a board of directors or a joint- management body to make decisions on major issues involving the venture in accordance with the provisions of the joint-venture contract or articles of association.
Cooperative joint ventures with the status of a legal person typically adopt a management system that is similar to that of equity joint ventures. See
In the case of other types of cooperative joint ventures, the venture is governed by a joint-management body consisting of representatives of each of the parties. Because no independent corporate entity exists, there is no executive officer as such, although a "legal representative" of the venture is usually appointed.
Under Art. 12 of the Cooperative Joint-Venture Law, a cooperative joint venture may hire a third party to manage its business. The decision must be based on the unanimous agreement of the members of the board of directors or the joint-management body. The decision must also be reported to the examining and approval body of the government for approval.
The board of directors or a joint-management committee of a joint venture cannot have fewer than three members, and the right to appoint the members is set out in the contract according to the ratio of investment by each of the parties.
If one party appoints the chairman, the vice chairman shall be appointed by the other partner. The term of office of the members of the board of directors or joint-management committee is set out in the joint venture's articles of association, but the term must not exceed 3 years.
The chairman or vice chairman of the board of directors or the joint- management committee is the legal representative of the joint venture. The joint venture should have one general manager in charge of daily operations who is accountable to the board or the committee. The general manager is hired and dismissed by the board or the committee. The manager can be either Chinese or a foreign national.
The following items can only be approved with the unanimous consent of members of the board of directors or the joint-management committee:
- revision of the joint venture's articles of association;
- decrease or increase of the joint venture's registered capital;
- the liquidation of the joint venture;
- the mortgage of the joint venture's assets;
- the merger, alteration or division of the joint venture's organizational structure; and
- other matters as decided by the board of directors or the joint- management committee.
There are no provisions under the Cooperative Joint-Venture Law that deal with supervisory boards.
A cooperative joint venture with the status of a legal person is not a stock company. No stock can be issued. Partners are not shareholders in the sense of Western company law. Rights and obligations of parties to a joint venture are governed by the joint-venture contract. Each party participates in the management of the venture.
If one party to a cooperative joint venture wishes to assign, in full or in part, its rights and liabilities as prescribed in the joint- venture contract, the assignment must be approved by the other party and reported to the examining and approving body for approval.
Cooperative joint ventures are subject to the same provisions as equity joint ventures. See
Unlike equity joint ventures, there are no statutory limits on the duration of cooperative joint ventures. The term of operation of a cooperative joint venture is to be decided by consultation between the parties and is to be clearly specified in the contract. Applications to extend the term must be made to the examination and approval authorities 180 days before the expiry of the original term. Approval or refusal will be granted within 30 days of receipt of the application.
On expiry of the term of cooperation or termination prior to that date the assets, claims and debts of the joint venture must be settled between the parties in accordance with the terms of the contract. The termination of the enterprise must be reported to the administrative authorities for industry and commerce and to the tax authorities.
If the joint-venture contract specifies that the foreign partner can recover its capital in advance and this capital has been fully recovered, an extension of the term will not be approved. However, if the foreign partner has increased its investment, an extension of the term is possible provided that the application for extension is submitted to the appropriate department for approval.
The cooperative joint ventures' takeover and merger are similar to those of the equity joint venture. See
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