The distribution of profits in cooperative joint ventures is different from the practices employed by equity joint ventures. Art. 22 of the Cooperative Joint-Venture Law provides that Chinese and foreign partners shall distribute income or products and shall bear responsibility for risks or losses in accordance with the contract. Thus, for cooperative joint ventures, the ratio agreed by the parties for the sharing of profits of the venture may be different from the ratio of the parties' capital contributions.
The method employed by equity joint ventures, as prescribed by the Equity Joint-Venture Law, takes a different approach. For equity joint ventures, partners are required to share the profits in accordance with the ratio of their capital contributions.
Therefore, cooperative joint ventures are considerably more flexible than equity joint ventures, permitting various schemes whereby the profit share owing to the parties is not tied to the value of their contributions but may increase or decrease over the life of the contract.
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.
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