Different types of entities perform obligations in different ways.

This post was first published in CJO GLOBAL, which is committed to providing consulting services in China-related cross-border trade risk management and debt collection. We will explain how debt collection works in China below.

The most common type is the company, and most entities engaged in trading are companies. Individual-run industrial and commercial households, public institutions, and partnership enterprises are also common business entities. In addition, state organs occasionally appear in civil and commercial transactions.

1. Companies

In China, the company includes the limited liability company and the company limited by shares.

The former has no more than 50 shareholders. The latter can normally have a maximum of 250 shareholders, and if it is listed, the number of shareholders can be unlimited.

The shareholders are liable for the debts of the company to the extent of their capital contribution.

2. Individual-run industrial and commercial households

If the business entity is just an investor or a family, an individual-run industrial and commercial household may be established in order to make the operation easier.

In China, many of the small and medium-sized manufacturers engaging in exporting goods are individual-run industrial and commercial households.

The debts of an individual-run industrial and commercial household shall be paid from the assets of the individual who operates the business in his own name, or from the individual’s family assets if the business is operated in the name of the household. In case it is impossible to determine whether the business is operated in the name of the individual or in the name of the individual’s household, such debts shall be paid from the individual’s family assets.

3. Public institutions

Public institutions are entities established for public welfare. They may also engage in business activities such as purchasing goods or providing services.

Most of the public institutions in China are set up by governments. Many government-backed research institutions, educational institutions, cultural institutions, and international exchange institutions are public institutions.

A public institution shall independently assume liabilities to the extent of all its assets. However, after such institution has been revoked, the subject that has established the institution shall bear all liabilities for its debts.

4. Partnership enterprises

Partnership enterprises include common partnership enterprises and limited liability partnership enterprises.

A common partnership enterprise comprises common partners who bear unlimited and joint liabilities for the debts of the partnership enterprise. Accountancy firms and law firms are usually common partnership enterprises.

A limited liability partnership enterprise comprises common partners and limited partners. The common partners shall bear unlimited and joint liabilities for the debts of the limited liability partnership enterprise, and the limited partners shall bear the liabilities for its debts to the extent of their capital contributions. Private equity firms are usually limited liability partnership enterprises.

5. State organs

In civil and commercial transactions, the legal status of state organs (governments and their departments) is no different from that of other commercial entities, which shall assume liabilities independently with all their properties.

When a state organ is revoked, its civil rights and obligations are enjoyed and assumed by the succeeding state organ; in the absence of a succeeding state organ, the said rights and obligations shall be enjoyed and assumed by the state organ that has made the revocation decision.

Photo by Zhengnan Liu on Unsplash

Contributors: Meng Yu 余萌

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