Joint Ventures 2026 Comparisons

Changes in 2025/26

Over the past year, there has been a pronounced surge in Chinese entities forming joint ventures (JVs) with foreign partners outside the People’s Republic of China (PRC or China, solely for the purpose of this article, excluding Hong Kong, Macau and Taiwan). This shift is largely a strategic response to domestic overcapacity, escalating tariff barriers, and anti-subsidy regimes, coupled with the global imperative for supply chain localisation. Ultimately, this signals the dawn of a new era: the true globalisation of Chinese enterprises.

In contrast, inbound JV activity into China has slowed down significantly. Macro-economic headwinds, geopolitical tensions, trade barriers, and expanding sanctions have driven a major recalibration of the market. Rather than forming new ventures, many foreign investors are opting to restructure, dilute their equity, or even fully exit their China operations.

There has also been a notable shift in investor composition. While historical Sino-foreign JVs were overwhelmingly driven by industrial/strategic investors seeking technical or market synergies, recent transaction flow features a growing presence of private equity (PE) and financial sponsors. Financial investors are stepping in to provide needed liquidity, operational autonomy, and localised governance, facilitating recapitalisations and strategic realignments where traditional multinational corporations (MNCs) prefer to de-risk or monetise mature assets.

Trends for 2027

Looking ahead to 2027, outbound JV momentum is expected to not only continue but accelerate. Driven by the ongoing need to navigate trade barriers and localise supply chains, Chinese manufacturing and technology enterprises will increasingly form overseas JVs in strategic growth regions, particularly Southeast Asia, Europe, and Latin America. For JVs within China, the optimisation of existing JVs will remain the key theme.

Sector-Specific Activities

JV activities, whether outside or within China, have remained concentrated in capital-intensive, policy-supported, and technology-driven sectors. Key active sectors include new energy vehicles (NEVs) and the advanced battery supply chain, biopharmaceuticals and advanced medical technology, AI-driven infrastructure (such as data centres, robotics, semiconductor manufacturing, and advanced chip packaging) and generative AI and big data.

Impact of Merging Technologies and Related Regulations

Emerging technologies and related regulations are fundamentally reshaping how JVs function in China, creating a landscape where localisation, data governance, and intellectual property protection are not just legal requirements but core operational and strategic considerations. In particular, in the AI and big data sectors, China’s stringent “three laws” – the Cybersecurity Law (CSL), Data Security Law (DSL), and Personal Information Protection Law (PIPL) – mandate strict rules on data storage and cross-border transfer. Foreign investors may be compelled to localise their infrastructure and algorithm to comply with mandatory requirements under PRC law such as data local-storage and algorithm filings.

At the same time, strict regulatory frameworks impose additional compliance obligations on JVs, reshaping the transaction process as follows:

• Due Diligence: Data compliance, algorithm filings, app filings and other AI-related regulatory compliance requirements become a “must” in legal due diligence.
• Contract Drafting: Tailored provisions are required in transaction documentation to address data ownership and processing, statutory compliance covenants, and tech-related risk allocation.
• Post-Establishment Operations: Establishment of robust internal data governance frameworks and technical firewalls becomes necessary post-closing to ensure ongoing regulatory compliance.

It is worth noting that the Regulations of Outbound Investment, which came into effect on 1 July 2026, expressly prohibit the cross-border transfer of technologies, services and related data whose export is prohibited or restricted under PRC law through means such as establishing overseas JVs, dispatching technical personnel and/or providing technical guidance to overseas entities. As a result, for Chinese entities’ JVs outside China, in particular those involving AI, semiconductors, and advanced manufacturing, comprehensive compliance reviews are now more critical than ever.

Limited liability companies, which offer robust corporate limited liability protection and flexible governance arrangements, are the most prevalent structure for JVs in China.

Joint stock companies (JSCs) are primarily utilised in specific heavily regulated sectors (such as financial services or securities) where statutory or regulatory mandates require the JSC form, or when parties envisage a future public listing plan (typically achieved by converting an existing limited liability company into a JSC).

Contractual joint ventures (CJVs) were recognised as a permitted form of foreign-invested enterprise (FIE) under the PRC Sino-Foreign Contractual Joint Ventures Law. It was primarily utilised in industries characterised by short-term, project-based life cycles or where profit distribution needs to be decoupled from capital contribution, such as large-scale infrastructure and construction, oil exploration and mining. However, following the implementation of the PRC Foreign Investment Law in 2020, which replaced the previous FIE regime, CJVs are no longer available as a separate statutory corporate form for registration in China and are instead implemented through contractual arrangements between the venturers.

Governance, Liability, and Exit Alignment

Investors evaluate vehicles based on their ability to secure entity-level limited liability, accommodate customised corporate governance, and adapt to contractual exit rights or corporate conversions required for a future IPO. Limited liability companies offer highly flexible governance, easily accommodating customised voting arrangements, veto rights, and contractual exit mechanisms (eg, put/call options, drag-along rights). JSCs, while offering the ultimate exit liquidity via public listing, are burdened by rigid statutory governance requirements that to a certain extent constrain bespoke control arrangements.

Regulatory Certainty and Established Judicial Practice

The limited liability company and JSC are governed by the PRC Company Law (as amended in 2023 and effective from 1 July 2024) (the “2023 PRC Company Law”), which provides a mature, comprehensive statutory framework supported by a vast body of judicial precedent. This offers significant regulatory certainty and predictable dispute resolution. In contrast, the CJV is primarily governed by the PRC Civil Code and contract law principles. While this grants maximum contractual freedom, it carries higher enforcement risks due to the relative lack of specialised judicial interpretation.

Tax Efficiency and Incentives

Tax optimisation and repatriation mechanics are critical drivers. Limited liability companies and JSCs are independent taxpaying entities subject to the standard 25% corporate income tax (CIT) or a 15% reduced rate if qualified as high and new technology enterprises (HNTE). The dividends repatriated to foreign enterprise investors are subject to a 10% withholding tax (WHT), subject to applicable double tax treaty reductions.

JVs in China are governed by a comprehensive legal framework, primarily comprising the 2023 PRC Company Law and the PRC Foreign Investment Law, alongside sector-specific regulations.

Key Regulatory Bodies

The primary regulatory bodies include the following:

• The State Administration for Market Regulation (SAMR) manages the registration of JVs and oversees corporate compliance, including the filing of articles of association (AoA) and changes to shareholding, and takes charge of merger control filing.
• The National Development and Reform Commission (NDRC) is responsible for project approval and filing, particularly for large-scale investments and projects involving restricted sectors, and plays a leading role in national security reviews.
• The Ministry of Commerce (MOFCOM) oversees foreign investment policies, administers the Negative List, and handles filings and approval for certain cross-border technology transfer or investment transactions.
• The State Administration of Foreign Exchange (SAFE) regulates capital inflows, cross-border profit remittances, foreign debt quotas, and foreign exchange registration for foreign-invested JVs.

Industry-Specific Regulators

Depending on the JV’s business scope, sector-specific regulators exercise oversight. For instance, the Ministry of Industry and Information Technology (MIIT) regulates TMT, cloud, and telecommunications sectors; the National Financial Regulatory Administration (NFRA), the People’s Bank of China (PBOC) and the China Securities Regulatory Commission (CSRC) oversee financial services and capital market activities; and the Cyberspace Administration of China (CAC) has a say on all cybersecurity and data-compliance matters in any sector.

AML compliance in China is governed by the PRC Anti-Money Laundering Law, and overseen by the PBOC in co-ordination with financial intelligence units.

While AML statutory obligations apply directly to financial and payment institutions, they exert a strict compliance burden on JVs during banking procedures. Commercial banks enforce stringent KYC and AML verification protocols during capital account opening, registered capital injection, foreign debt registration, cross-border profit remittances, and equity sale proceeds transfers.

Sanctions Laws

The PRC Anti-Foreign Sanctions Law requires companies operating in China to comply with Chinese laws and prohibits them from executing discriminatory foreign restrictive measures. Multinational JVs are suggested to carefully craft compliance frameworks to navigate conflicting global sanction obligations and domestic compliance mandates.

National Security Review (FDI Control)

Under the Measures for the Security Review of Foreign Investment of the PRC, foreign investments in sensitive areas are subject to National Security Review (NSR) by a working office consisting of the relevant ministries and led by NDRC and MOFCOM. Sensitive areas include: (i) military-related sectors – where any foreign investment would trigger the NSR regardless of investment amount or percentage; and (ii) other important areas – such as critical agricultural products, key infrastructure, key energy, and core technology sectors – where the foreign investor obtaining “actual control” would trigger the NSR. In practice, the number of cases triggering a full national security review remains relatively limited compared to other major jurisdictions, but we are seeing increased scrutiny in sectors involving data and dual-use technologies.

Foreign Participation and Negative List

China operates a “pre-establishment national treatment plus negative list” regime (“Negative List”). If a JV’s business falls within the Negative List, foreign participation may be restricted or prohibited; otherwise, it enjoys equal access as domestic capital. Foreign equity ownership is capped, or domestic holding/key representation is required in “restricted” sectors and foreign participation is entirely barred in “prohibited” sectors. The regulatory trend reflects progressive market opening, with successive revisions reducing the total number of restricted and prohibited items on the Negative List.

The PRC Anti-Monopoly Law requires that transactions (including JVs) constituting a “concentration of undertakings” be notified to SAMR if they meet specific turnover thresholds. Under the 2024 revised thresholds, mandatory prior filing is required in the following circumstances: (i) if the combined global turnover of all parties participating in the concentration exceeds CNY12 billion, and at least two parties participating in the concentration each have a turnover exceeding CNY800 million within China; or (ii) if the combined turnover within China of all parties participating in the concentration exceeds CNY4 billion, and at least two parties participating in the concentration each have a turnover exceeding CNY800 million within China.

In practice, the vast majority of JV merger control filings receive unconditional clearance under SAMR’s simplified review procedure. Conditional clearances with behavioural or structural remedies represent a small fraction of cases, usually concentrated in highly consolidated markets such as semiconductors or specialised industrial components.

When a publicly listed company participates in a JV, it must strictly adhere to the rules set forth by the CSRC and the relevant stock exchanges (eg, Shanghai or Shenzhen Stock Exchange).

Participation in a JV that qualifies as a “major asset restructuring” of the listed company or involves a significant related-party transaction triggers mandatory public disclosure requirement. In such instances, the listed company may be required to convene a shareholders’ meeting to obtain approval for the investment. In practice, deal timing and closing conditions must be carefully co-ordinated with these disclosure obligations, often requiring pre-approval procedures and advance planning of the deal timetable.

MOFCOM and PBOC each have a UBO filing requirement. While the UBO filing with MOFCOM is part of the foreign investment information filing, which mainly serves for foreign investment administration and statistics purposes, PBOC’s UBO filing mainly serves for anti-money laundering and counter-terrorism purposes. Hence, the standards for determining UBOs and the information requested to be filed are different in these two systems.

MOFCOM does not have a unified UBO filing system; however, FIEs are required to report their actual controlling parties (together with other information) through the enterprise registration system and the enterprise credit information publicity system. A UBO is defined as the entity (i) holding, directly or indirectly, 50% or more of the equity interest or voting rights of the entity; (ii) having the ability to appoint or secure more than half of the members of the BOD, or to materially influence relevant decisions of the entity; or (iii) controlling the entity’s business operations or other material matters. The UBO should generally be a natural person, but may in exceptional cases be an entity, such as a listed company or a government authority.

PBOC’s UBO filing is mainly implemented through SAMR’s filing system. Companies are required to file their UBO information upon establishment or 30 days following any changes. A UBO is defined as a natural person who holds, directly or indirectly, 25% or more of the equity interest or voting rights of the entity, ultimately enjoys 25% or more of the entity’s economic benefits, or otherwise exercises actual control over the entity. If no UBO is identified pursuant to the foregoing criteria, the natural person responsible for the entity’s daily operations and management shall be treated as the UBO for filing purposes. This UBO information is reserved for government regulatory use and is not publicly available.

Implementation of the 2023 PRC Company Law

The 2023 PRC Company Law introduced a mandatory five-year capital contribution deadline, established share forfeiture mechanisms for defaulting shareholders, and removed statutory shareholder consent requirements for third-party equity transfers while preserving rights of first refusal. Crucially, it significantly reformed board dynamics by introducing mandatory director recusal rules for conflict-of-interest transactions while enhancing structural flexibility, allowing certain small companies to forgo a board of directors (BOD) entirely or replace supervisors with an audit committee under the BOD. See also 7.1 Board Structure.

End of the PRC Foreign Investment Law Transition Period

31 December 2024 marked the end of the five-year transitional window granted under the PRC Foreign Investment Law. Legacy Sino-foreign equity and co-operative joint ventures established under pre-2020 foreign investment laws were required to amend their constitutional documents, transition their supreme governing body from the BOD to the shareholders’ meeting, and align corporate governance fully with the 2023 PRC Company Law. This statutory mandate drove extensive shareholder agreement (SHA) renegotiations, shareholder buyouts, and corporate restructurings across 2024 and 2025.

The negotiation of a JV in China typically progresses through several stages, using the following documents:

• non-disclosure agreements (NDAs);
• term sheets/MoUs (memoranda of understanding) – a non-binding document outlining the key commercial parameters of the JV, including:
1. binding clauses (market standard) – exclusivity, confidentiality, governing law, dispute resolution, and fees/costs; and
2. non-binding clauses – shareholding structure, capital contributions, shareholders’ rights, minority shareholder’s reserved matters, board seat and voting mechanism, management nomination right, closing conditions, strategic support commitments (eg, technology license, trade mark, production resources, and intra-group services), share transfer rules and exit; and
• due diligence questionnaires (DDQs) – increasingly used in JVs involving PE/financial investors or where one party is acquiring an existing stake.

The execution or implementation of a binding SHA requires mandatory notifications, approvals, registration or information disclosures with the following competent regulatory authorities:

• antitrust notification – mandatory pre-closing merger control filings where turnover thresholds are met, as detailed in 3.4 Competition Law and Antitrust;
• national security review authorities – foreign investment security review filings for qualified transactions in sensitive sectors, as detailed in 3.3 Sanctions, National Security and Foreign Investment Controls;
• corporate registration and UBO filings – corporate registration for the legal formation of the JV, UBO filing with MOFCOM, and UBO filing with PBOC, as detailed in 3.6 Transparency and Ownership Disclosure and 5.4 Legal Formation and Capital Requirements;
• tax registration and SAFE registration – tax registrations along with foreign exchange and capital account registrations with SAFE, as detailed in 3.1 Legal Framework and Regulatory Bodies; and
• CSRC and stock exchanges – mandatory public disclosures and approval procedures for JVs involving PRC-listed companies, as detailed in 3.5 Listed Companies and Market Disclosure Rules.

Conditions Precedent (CPs)

Closing in Chinese JV transactions is typically conditional upon satisfying comprehensive CPs, including:

• representations and warranties being true, accurate and complete as of the signing date and closing date;
• fulfilment of all pre-closing obligations and covenants;
• obtaining all regulatory approvals (including antitrust clearance and specific sectoral approvals, if required); and
• execution of all ancillary transaction documents (such as IP licences).

MAC and Force Majeure Events

Material adverse change (MAC) and force majeure clauses are not uncommon in a share purchase agreement or share subscription agreement, in case the JV is formed via acquisition of existing equity interest or subscription of the JV’s newly increased registered capital. Nevertheless, it is less common for an SHA to include MAC or force majeure clauses.

While Chinese law recognises force majeure and change of circumstances under the PRC Civil Code, market practice now demands highly specific definitions of trigger events – such as targeted sanctions, material tariff increases, war, or regulatory changes – rather than relying on generic language.

Furthermore, in response to escalating geopolitical tensions and regional conflicts, parties increasingly customise material adverse change (MAC) and force majeure clauses to explicitly encompass wars, military conflicts, international sanctions, sudden legislative changes, and governmental trade bans. Consequently, the practical likelihood of triggering these protective clauses has risen significantly in recent transaction practice.

Formation Procedure (eg, Limited Liability Companies)

This procedure involves:

• name pre-approval – verification with SAMR to reserve the company name;
• registration with SAMR – submission of the AoA and director appointments; the JV is legally formed on the date the business licence is issued;
• filing with the MOFCOM information system (if foreign investment is involved);
• SAFE registration for capital accounts and cross-border transactions; and
• tax registration with the tax bureau.

Legal Requirements Regarding Foreign Participation

Foreign participation must comply with the requirements of the Negative List, as detailed in 3.3 Sanctions, National Security and Foreign Investment Controls.

Minimum Capital Contributions

There is no statutory minimum registered capital for most industries. However, under the 2023 PRC Company Law, all shareholders must fully contribute their subscribed capital within five years of the company’s establishment. See also 6.3 Funding.

As discussed in 2.1 Typical JV Structures, JVs are normally set up as limited liability companies. Consequently, JV terms are usually documented in a shareholders’ agreement (SHA) and the AoA. As a general practice, the SHA is more detailed and tailor-made, while the AoA could be a boilerplate text given that the AoA will generally be made public. The venturers typically include an order of precedence provision to ensure that in the event of any conflict between the SHA and AoA, the SHA will prevail.

If a JV is a JSC, its terms would be documented in the promoters’ agreement and the AoA.

Regardless of the different forms of the JV, key terms of the JV agreements typically include:

• setting out the basic arrangements for the establishment of the JV, including the legal form, business scope, and purpose of the co-operation among the venturers;
• specifying the amount, form and timing of capital contributions by each venturer, as well as arrangements for capital increases, shareholder loans and additional funding;

• specifying the shareholding structure, and possible restrictions on changes in ownership;
• establishing the governance structure of the JV, including shareholders’ meetings, BOD or sole director, supervisors and management personnel;
• specifying arrangements for profit distribution and allocation of losses;
• IP – specifying the ownership, licensing and use of IP and technology contributed by the venturers, as well as the IP and technology developed by the JV after its establishment;
• restricting venturers and their affiliates from competing with the JV (recent SHAs reflect a trend toward more granular product and geographic arrangements to avoid operational disruption and mitigate antitrust risks);
• specifying mechanisms for resolving deadlocks between the parties;
• specifying the term of the JV agreement, termination events and consequences of termination;
• establishing remedies for contractual default, including liquidated damages and indemnification; driven by the new statutory five-year capital contribution deadline, recent SHAs increasingly incorporate tailored consequences for capital contribution defaults, such as restrictions on voting rights or equity dilution mechanisms; and
• specifying the governing law and dispute resolution mechanism.

With respect to a JV in the form of a limited liability company, the shareholders’ meeting serves as the supreme governing body for material corporate matters, while the BOD is responsible for the company’s business decisions and management oversight, and senior management (such as the general manager (GM)) oversees the JV’s daily business operations. The 2023 PRC Company Law reflects a trend toward strengthening the operational autonomy of a limited liability company by streamlining shareholder powers, strengthening the BOD’s power in the company’s operations and decision-making, and eliminating the statutory list of powers of the GM, thereby allowing the GM’s powers to be stipulated in the AoA or authorised by the BOD.

The list of statutory powers of the shareholders’ meeting is further shortened to cover nine items only, including:

• electing directors and supervisor(s);
• approving BOD’s report;
• approving board of supervisors’ (BOS) reports;
• determining profit/dividend distribution;
• changing the registered capital;
• offering corporate bonds;
• approving the combination, division, dissolution, liquidation of the company and change of form;
• amending the AoA; and
• other powers set out in the AoA.

Unlike the previous law, the 2023 PRC Company Law no longer expressly reserves decisions on business policies, investment plans, or annual budgets and final accounts to the shareholders’ meeting. On the other hand, shareholders (venturers, in the case of JVs) enjoy contractual flexibility to customise voting rules, including veto rights in the AoA and SHA to safeguard minority interests (see also 6.7 Minority Protection and Control Rights). Shareholders are entitled to vote in shareholders’ meetings in proportion to their respective equity-holding percentage.

The BOD serves as the executive and decision-making body of a limited liability company. The statutory powers of the BOD cover major operational matters, including:

• deciding the company’s business and investment plans;
• preparing profit distribution and loss recovery plans;
• preparing a proposal for change of registered capital, mergers, divisions, dissolution, or changes in corporate form;
• deciding the company’s internal organisational structure;
• appointing/removing senior management; and
• establishing the company’s basic management systems.

Shareholders (venturers, in the case of JVs) enjoy contractual flexibility to customise BOD’s voting rules, including veto rights of minority shareholders in the AoA and SHA. Each director is entitled to one vote on each BOD decision matter.

The 2023 PRC Company Law made significant changes to the supervision system. Unlike the previous company law under which a BOS or individual supervisor was mandatorily required, the 2023 PRC Company Law allows a company to establish an audit committee within its BOD to exercise the statutory functions of the supervisory board, in which case no BOS or individual supervisor is required. A small-scale limited liability company, or one with few shareholders, may appoint one supervisor instead of establishing a BOS; and with the unanimous consent of all shareholders, such small-scale limited liability company may dispense with supervisors entirely.

Unlike the authorised capital regime adopted in many other jurisdictions, China employs a concept of “registered capital”. “Registered capital” of a limited liability company must be stipulated in the AoA and registered with the company registration authority; changes to the registered capital are subject to super majority approval at a shareholders’ meeting. Subscribed registered capital represents a binding obligation owed by the relevant venturer to the JV and should be fully paid in within the time limit stipulated in the AoA, which shall not exceed a maximum of five years.

Shareholders should be liable to the company for failure to make the capital contribution in time. The 2023 PRC Company Law made a substantial change to liabilities in connection with a shareholder’s failure to make the capital contribution, including the following:

• With respect to any equity interest for which the corresponding registered capital has not been paid up, a transfer of the equity interest does not necessarily release or discharge the selling shareholder from its obligation to make the capital contribution if the new shareholder fails to make the contribution in full.
• A shareholder may forfeit its shareholder rights corresponding to the relevant equity interest in the event of a failure to make the required capital contribution and failure to cure the breach after receiving a notice from the board of directors requiring it to make the outstanding contribution (“forfeiture of shareholder right”).
• Directors may be personally liable for failing to take timely action to urge shareholders to make their capital contributions.

In principle, other than making the subscribed registered capital contribution, the venturers have no obligation to provide further funding to the JV. However, if a capital increase is approved by the shareholders’ meeting, each shareholder is entitled to pre-emptive rights in proportion to its equity holding. Anti-dilution provisions are common in PE/VC investments, but are less common in JV arrangements.

A JV may also obtain funding through onshore or offshore loans. Offshore debt financing is typically subject to strict foreign exchange controls under the macro-prudential management regime (宏观审慎管理), under which a JV’s upper limit for long-term offshore financing is dynamically capped by a statutory formula calculated by reference to its capital or net assets. Certain FIEs may instead apply the cross-border debt quota regime, under which the applicable quota is calculated based on the difference between the total investment amount and registered capital.

Governance structure is usually carefully designed to minimise deadlock situations. However, if a deadlock arises, common resolution mechanisms in China include the following:

• Escalation to Senior Management – The disputed issue may be escalated to the senior executives of the venturers for commercial negotiation within a defined cooling-off period.
• Buy-Out – The SHA typically specifies a call option allowing one venturer to acquire the equity interest held by the other venturer, or a put option allowing one venturer to sell the equity interest to the other venturer, upon occurrence of certain triggering events. Deadlock may be one such triggering event, but it is generally not preferred given the uncertainties it may create.
• Judicial Dissolution – As a statutory last resort under PRC law, if a company experiences severe difficulties in its operation and management, and its continued existence will cause material loss to the shareholders’ interests, which cannot be resolved through other means, shareholders holding 10% or more of the total voting rights have the statutory right to petition the court to dissolve the company. In practice, courts usually adopt a cautious approach when applying such rules so the threshold for judicial dissolution is practically high.

Beyond the SHA and AoA, venturers typically enter into ancillary agreements designed to integrate their respective resources (eg, technology, supply chains, and distribution networks) to support the JV’s operations.

• IP/Technology Licence Agreements: Venturers may enter into technology licence agreements and/or trade mark licence agreements to enable the JV to use the venturer’s IP rights (such as patents, know-how, trade marks, etc) in its operations. Venturers and the JV may also enter into R&D agreements to set out future R&D arrangements between the parties. See also 8.1 Ownership and Use of IP.
• Supply and Sales Agreements: Venturers may enter into raw material/component supply agreements and/or product sales agreements with the JV to enable the JV to utilise the venturers’ existing supply chains, distribution channels or other commercial networks.
• Consultancy and Services Agreements: Venturers may enter into raw material/component supply agreements and/or product sales agreements with the JV, allowing one party (either a venturer or the JV) to provide administrative, technical, marketing, or management support to the other party (either the JV or a venturer).
• Asset Transfer Agreements: In the case of a venturer making a capital contribution to the JV using tangible assets or IP, an asset transfer agreement should be entered into between such venturer and the JV. It is suggested that the value of such assets should be assessed by a third-party appraisal institution to avoid future disputes. If IP is involved, there should normally be a separate IP transfer agreement.

Rights and Obligations of Venturers

Among others, key statutory rights and obligations include the following.

Key rights

Venturers are entitled to economic rights, including receiving dividends and other profit distributions, subscribing for additional registered capital or newly issued shares on a pre-emptive basis, and receiving the company’s remaining assets after liquidation.

Venturers are entitled to non-economic rights/powers, including: attending shareholders’ meetings of the JV and exercising voting rights, nominating directors and supervisor(s), inspecting and accessing the JV’s financial information, etc.

Venturers are entitled to vote on shareholder-reserved matters in proportion to their equity-holding percentage.

The 2023 PRC Company Law requires that certain major corporate matters must be approved by shareholders (in the case of a JV, the venturers), such as amendments to the AoA, increases or reductions of registered capital, mergers, divisions, dissolutions, changes in corporate form, etc (“Statutory Reserved Matters”); and in addition to these Statutory Reserved Matters, venturers may set forth more shareholders-reserved matters in the AoA.

Venturers are also entitled to inspect and copy the JV’s financial reports and may also request access to the JV’s accounting books and accounting vouchers. Notably, the 2023 PRC Company Law has strengthened information rights of shareholders, empowering shareholders to inspect a JV’s accounting books and accounting vouchers, as well as those of the JV’s wholly-owned subsidiaries, provided that they submit a written request demonstrating a legitimate purpose.

Key obligations

A venturer’s major obligations include paying in the subscribed capital on time, complying with the AoA, and refraining from abusing shareholder rights. A venturer is obliged to pay the subscribed capital in full within five years (or a shorter period stipulated in the AoA), except that such capital contribution obligation may be accelerated if the JV is unable to pay its due debts. Notably, a venturer should act in good faith and is prohibited from abusing its shareholder rights or limited liability status to harm the interests of the JV, other minority venturers, or creditors of the JV.

Profit Distribution and Allocation of Losses

Profit distribution

By statutory default, dividends are distributed in proportion to the venturers’ paid-in capital contributions. However, venturers may, either in the AoA or via unanimous shareholders’ resolutions, agree to distribute profits not in proportion to their paid-in capital contributions, except that as a matter of practice, such non-proportional dividend distribution may be subject to scrutiny by local tax authorities. A JV is not allowed to distribute dividends to venturers until it has paid applicable tax liabilities, offset cumulative historical losses, and allocated the after-tax profits to the reserve fund.

Losses

As a general principle, losses incurred by the JV shall be borne by the JV itself and the liability of venturers is limited to their respective subscribed registered capital.

Liability for JV Debts and Exceptions

As a general principle, a venturer’s liability for the debts of the JV is limited to the amount of registered capital it has subscribed for. However, a venturer’s liability may extend beyond this limit if the venturer has abused the JV’s limited liability status to evade its debts.

In a JV case, either a domestic JV or an international JV, a minority venturer may protect its interests through the following approaches:

• Veto Rights – The 2023 PRC Company Law requires that the Statutory Reserved Matters are subject to supermajority votes (more than 2/3 of total voting power) by shareholders. Other than those statutory protections, in the case of a JV, the venturers usually agree to a longer list of matters for which the minority venturer’s consent is required, such as annual budgets, significant capital expenditures, major debt incurrence, and related-party transactions.
• Board Seats and Directors’ Veto Rights – While the 2023 PRC Company Law provides that directors of a company should be elected by shareholders, in a JV case, the venturers would usually “allocate” the board seats in proportion to their equity holding percentage, and the venturers will usually cooperate with each other to appoint the relevant candidates nominated by the venturers into the BOD. It is also common that the venturers would agree upon a list of matters in respect of which the directors nominated by the minority venturer have a veto.
• Information and Inspection Rights – The right to information is an important vehicle for a minority venturer to monitor its investment. See 6.6 Rights and Obligations of JV Partners for more information.

A minority venturer may initiate a lawsuit to challenge defective resolutions, request profit distribution, compel access to the JV’s books and records, or commence derivative actions on behalf of the JV against directors, executives or other responsible parties who harm the JV’s interests. A minority venturer may also seek an exit from the JV (please see 9. Exit Strategies and Termination for more details).

Historically, an international JV’s SHA must be governed by PRC law. Following the repeal of the Sino-Foreign Equity Joint Venture Law, such statutory requirement was eliminated. However, as a matter of practice, the SHAs of international JVs are generally still governed by PRC law.

For international JVs, the venturers have the following choices for dispute resolutions in connection with the SHA: litigation in China or outside of China, or arbitration in China or outside of China. Given the flexibility and confidentiality of arbitration, as well as the ability to select arbitrators with appropriate expertise and experience relevant to the dispute, international JV venturers generally prefer international arbitration over domestic arbitration and domestic or international court litigation. In order to choose international arbitration as the dispute resolution forum, the venturers must include an arbitration provision in the SHA, with a specific arbitral institution selected. Ambiguous clauses such as “dispute may be solved through either arbitration or court litigation” are deemed invalid under PRC law, which would result in the jurisdiction of dispute defaulting to the court. Commonly selected arbitral institutions include:

• domestic institutions – the China International Economic and Trade Arbitration Commission (CIETAC), the Beijing Arbitration Commission (BAC) and the Shanghai International Economic and Trade Commission (SHIAC); and
• offshore institutions – the Hong Kong International Arbitration Centre (HKIAC) and the Singapore International Arbitration Centre (SIAC).

China is a contracting party to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York Convention). Accordingly, foreign arbitral awards rendered by arbitral institutions in other New York Convention contracting states, such as HKIAC and SIAC, may be recognised and enforced in China through the PRC courts, subject to the limited grounds for refusal prescribed under the Convention.

In China, mediation is encouraged by courts and arbitral institutions and may be conducted voluntarily before or during dispute resolution proceedings, but it is generally not a mandatory precondition to commencing proceedings.

A limited liability company may have either a sole director or a BOD with three or more directors. While the 2023 PRC Company Law provides that directors of a company should be elected by shareholders, in the case of JVs, the venturers would usually “allocate” the board seats in proportion to their equity holding percentage, and the venturers will cooperate with each other to appoint the relevant candidates nominated by the venturers into the BOD.

The 2023 PRC Company Law does not contain legal requirements on who can serve as directors of a company, but stipulates certain negative qualifiers that may disqualify an individual from serving as a director (eg, persons with recent criminal convictions for economic crimes, certain persons who are personally liable for a company’s bankruptcy, etc). There are no nationality, residency, or special restrictions imposed on foreign individuals serving as directors of a Chinese JV.

Each director shall have one vote at the meetings of the BOD unless a casting vote mechanism is introduced to resolve tie voting. PRC law does not recognise weighted voting rights at the director level. Consequently, control over the BOD is achieved not through differential director voting power, but by negotiating the allocation of board seats.

Functions of JV BOD

See also 6.2 Governance and Decision-Making regarding powers and responsibilities of BOD.

In theory, the 2023 PRC Company Law does not prevent a BOD from delegating its functions to single directors, subcommittees or third parties. However, as a matter of practice, a general delegation of the BOD’s statutory powers/responsibility to an individual or entity is usually not acceptable, particularly in connection with governmental applications. Delegation/authorisations are usually granted on a case-by-case basis. The BOD may authorise a director, officer, or subcommittee to take certain actions or sign certain documents on behalf of the company for a specific matter.

Historically, the BOD should report and be responsible to the shareholders’ meeting. However, such requirement was removed in the 2023 PRC Company Law. Such amendment indicates a significant change in corporate governance, from “shareholder meeting centralism” to “board centralism”, and change in the role of BOD, from an executive organ under the shareholders’ meeting to an independent operation and decision-making organ. That being said, however, the BOD is obliged to submit its work report to the shareholders’ meeting for approval.

Duties of Directors

The 2023 PRC Company Law provides that directors, supervisors and senior management owe fiduciary duties to the company, including:

• Duty of Loyalty – Directors shall avoid conflicts between their own interests and those of the JV, and shall not exploit their positions to seek improper gains. Directors are prohibited from engaging in self-dealing, taking advantage of affiliation to harm the interests of the JV, usurping corporate commercial opportunities, or operating competing businesses against the JV without reporting to and obtaining approval from the BOD or the shareholders’ meeting, and a conflicted director should recuse themselves from voting on the relevant resolution.
• Duty of Diligence – Directors shall, in performing their duties, act in the best interests of the JV and exercise the reasonable care ordinarily expected of a prudent manager. Directors may be personally liable for failing to urge shareholders to make their capital contributions on time, being responsible for a BOD resolution that results in damages to the JV, being responsible for an improper or illegal capital reduction or dividend distribution, failing to perform his/her liquidation obligations, being in violation of law in executing his/her functions and causing damages to the company, etc.

In practice, directors may face a tension between their duty to the JV and their loyalty to the venturer that appointed them. Generally, the director’s duty to the JV prevails over any competing instructions from the appointing venturer. As provided by the 2023 PRC Company Law, if a controlling shareholder instructs a director to damage the interests of the company or other shareholders, such controlling shareholder, viewed as a “de facto director”, shall bear joint and several liability with that director.

Holding a position in the venturer does not inherently make it inappropriate for an individual to sit on the board of the JV. See also 7.2 Duties and Functions of JV Boards and Directors.

Key IP Issues to Be Considered When Setting up a JV

• IP as Capital Contribution: It is common that venturers may allow the JV to use its IP and technologies in the operations. Nevertheless, unlike in some other jurisdictions, under PRC law, an IP licence (even an exclusive licence) in most cases is not an acceptable form of capital contribution. For a venturer to make a capital contribution to the JV in the form of IP, the ownership/title of the IP in principle should be transferred from the venturer to the JV. It is suggested engaging a third-party assessment institution to confirm the value of the IP contributed to the JV. Further, it is worth noting that a venturer will be liable to the company in the case of any defects in the property it contributes to the JV.
• IP Protection: Since IP rights are territorial, patents and trademarks not formally registered in China will not enjoy statutory protection under PRC law. By contrast, copyright subsists automatically upon creation of a qualifying work and is protected in China without a registration requirement under the Berne Convention. Know-how and trade secrets are also not dependent on registration, but require the holder to implement reasonable confidentiality measures to maintain protection under the PRC Anti-Unfair Competition Law.
• Pre-Existing IP Licence Arrangement: The IP contributing/licensing venturer should ensure that contributing/licensing to the JV will not be in conflict with any pre-existing IP licence arrangements.
• Export Control: The IP contributing/licensing venturer should ensure that contributing/licensing to the JV is not restricted by export control laws and other applicable laws.

Key IP Issues in Contractual Collaborations

• IP Ownership: It is important to agree upon the IP ownership in any contractual collaborations, including the background IP (ie, the IP of any venturer that are used in the collaborations) and the foreground IP (ie, the IP developed during the collaboration). It is common that the parties would agree that the background IP will continue to be the venturer’s proprietary assets, while the foreground IP may be owned by the JV, the contributing/licensing venturer or jointly by the JV and the contributing/licensing venturer.
• Back Licence: It is not uncommon that in case the foreground IP will be owned by the JV, the contributing/licensing venturer may secure a back licence to enable the contributing/licensing venturer to use such foreground IP, either free of royalty or on a royalty basis.
• IP Allocation Upon Exit and Termination: The contributing/licensing venturer may also agree with the JV, either in the SHA or in a separate agreement, upon the allocation of the foreground IP upon such venturer’s exit or JV termination, subject to the statutory residual asset distribution requirements (see also 9.2 Asset Redistribution and Transfers).

Cross-Border IP Transfer

China maintains lists of technologies that are restricted or prohibited from being transferred/licensed to foreign entities, which may be updated by competent government authorities from time to time. For technologies falling within the prohibited technologies list, transfer of such technologies to an international venturer is strictly prohibited; for technologies falling within the restricted technologies list, an international venturer must obtain prior regulatory approval from the authority before conducting any cross-border transfer or licence.

In practice, it is more common for venturers to license their IP to the JV, whereas assignment is utilised when the venturers intend to make the IP a capital contribution to the JV. Please see below for a comparison.

• IP licence:
1. ownership – venturer;
2. capital contribution – in most cases not an explicitly recognised form of capital contribution;
3. fees – subject to contractual arrangement, either royalty basis or royalty free.
4. IP protection – the JV may face procedural difficulties or need the licensor to actively join the lawsuit when taking legal action against IP infringers in China; and
5. exit – termination of IP licence agreement(s).
• IP transfer/assignment:

1. ownership – JV;
2. capital contribution – can be used as capital contribution, subject to assessment requirement;
3. fees – the JV, being the IP owner, does not need to pay any further fees;
4. IP protection – the JV, being the IP owner, may take legal action against IP infringers in China; and
5. exit – the IP will remain with the JV unless:
1. the JV transfers the IP back to the contributing venturer; or
2. the venturer takes back the IP as residual property of the JV in the case of the JV’s liquidation, subject to the statutory property distribution sequence.

Why ESG Is Important

In China, ESG considerations for JVs mainly include environmental protection, work safety and labour compliance. Violations of laws can result in administrative penalties (such as fines and mandatory orders to cease operations), civil liabilities, and in some severe cases (such as severe environmental contamination or fatal workplace safety accidents), criminal liabilities. Key responsible personnel of the JV may face personal liabilities in the event that the JV is subject to any administrative penalties or criminal liabilities.

Recent Legal Developments Relating to ESG

The PRC Ecological and Environmental Code was adopted on 12 March 2026 and will take effect on 15 August 2026, serving as the fundamental law in the environmental protection field. The PRC Ecological and Environmental Code strengthens the environmental protection obligations and specifies a “dual penalty” regime, under which, in the event of environmental pollution or ecological damage, both the JVs and the directly responsible persons may be held liable.

Main ESG Regulations in China

• Environmental Protection: PRC Ecological and Environmental Code imposes environmental protection obligations, including but not limited to ecological conservation, green and low-carbon development, carbon emission management, product life cycle, and supply chain management.
• Production Safety: PRC Work Safety Law and PRC Occupational Disease Prevention Law require JVs to maintain a safe production environment, obtain required operational licences for special equipment, ensure personnel in high-risk or dangerous roles hold mandatory safety certifications, and provide regular occupational health examinations and protective gear for employees.
• Labour Compliance: The Labour Law and Labour Contract Law enforce statutory working hour limits, mandatory contributions to employee social insurance and housing funds, and prohibitions against forced labour and discrimination.

A JV arrangement may come to an end if (i) a venturer exits by transferring the JV’s equity interest to the other venturer or third party; (ii) a venturer exits via a unilateral capital reduction of the JV; (iii) the shareholders’ meeting approves the liquidation and dissolution of the JV; or (iv) the JV enters into a bankruptcy procedure.

Equity Transfer

A venturer may exit by transferring the JV’s equity interest to another venturer or a third party, which allows the exiting venturer to cash out while the JV continues to exist and operate as a going concern. In some JV cases, the SHA may contain call option, put option, drag-along or tag-along provisions that enable a venturer to force the other venturer to buy or sell equity interest of the JV, which may result in an end of the JV. Key considerations in such a case include:

• Right of First Refusal (ROFR) – In a limited liability company, if the exiting venturer plans to sell the JV’s equity interest to a third party, the other venturer(s) has statutory ROFR to acquire the equity interest at the same price and terms. In practice, venturers usually set forth more detailed provisions in the SHA for the implementation of ROFR.
• National Security Review and Antitrust Filing – Depending on the industrial sector in which the JV carries out business and the nature of the purchaser, an equity transfer may trigger antitrust filings in China (and some other jurisdictions) or even national security review (if a foreign purchaser is to acquire control in certain sensitive sectors), which adds in uncertainty to the closing of the transaction.
• Cross-Border Remittance of Consideration – If the exiting venturer is a foreign entity and the purchaser is a Chinese entity, due to China’s foreign exchange legal regime, the purchaser will not be able to remit the purchase price out of China until the JV and the purchaser have completed the relevant governmental formalities in connection with the equity transfer (company registration, tax filing and withholding and foreign exchange registration). The aforesaid formalities may take one to two months, so usually the exiting venturer and purchaser may set up an escrow account to secure the payment of the purchase price.
• Tax Filing and Payment of Capital Income Tax – In the case of an international venturer’s exit, the exiting venturer is obliged to make tax filings with the PRC tax authority for sales of equity interest in a Chinese entity. The capital income tax will then be determined by the tax authority. In the case of a Chinese purchaser, the purchaser is then obliged to withhold such capital income tax on behalf of the exiting international venturer. In the case of an international purchaser, in principle, the purchaser should fulfil the obligation of withholding; however, if the international purchaser fails to fulfil this obligation due to reasons such as absence of PRC tax registration, etc, the exiting venturer needs to independently file and pay capital income tax with the tax authority at the location of the JV whose equity is transferred.
• Termination of Ancillary Agreements – Following the exiting venturer’s exit, the ancillary agreements to which the exiting venturer is a party would usually terminate accordingly, and the parties to such agreements would need to settle outstanding receivables, payables and other accrued obligations.

Unilateral Capital Reduction

Normally, in the case of a capital reduction, the JV reduces its registered capital in proportion to the capital contribution by the venturers. As a result, the equity-holding structure of the JV will not change after the capital reduction, and the reduced capital (and premium) will be allocated to venturers in proportion to their capital contribution to the JV. Nevertheless, the 2023 PRC Company Law allows a company to conduct non-proportional capital reduction if all shareholders agree. It then gives a venturer an option to exit via a unilateral capital reduction of the JV under which the JV reduces the registered capital subscribed and paid in by the exiting venturer, and as a result, the exiting venturer takes all the reduced capital (and premium), and its capital contribution to, and equity-holding percentage in, the JV reduces to “0”.

Capital reduction is subject to mandatory statutory procedures, including supermajority approval by the shareholders’ meeting, notification to creditors and public announcement. In the event of any challenges from creditors, the company needs to either clear debts or provide adequate guarantees upon such creditors’ request.

Non-Bankruptcy Dissolution and Liquidation

A JV may be dissolved if the operation period set forth in the AoA expires, the shareholders’ meeting adopts a resolution to dissolve, the JV is ordered to close down by the government or court, or other termination events occur as stipulated in the SHA or AoA. In the event of dissolution, the JV should be liquidated; the directors of the JV are the liquidation obligors and should form a liquidation group within 15 days of the dissolution trigger event.

The liquidation group is responsible for ascertaining the JV’s property, notifying creditors, settling all outstanding claims and debts, and distributing the residual property. If the JV is solvent, the property of the JV should be distributed in the following statutory property distribution sequence: (i) liquidation expenses; (ii) wages, social insurance, and statutory severance of the employees; (iii) taxes; (iv) debts of the JV; and (v) venturers. The residual property of the JV after completion of (i)–(iv) above in principle should be allocated to the venturers in proportion to their capital contribution to the JV, unless otherwise provided by the AoA or agreed by all venturers.

Bankrupt Liquidation

If the JV is insolvent (unable to clear its due debts and its assets are insufficient to pay all liabilities), it will be liquidated via a court-supervised bankruptcy proceeding. The court takes control and appoints a bankruptcy administrator to take over the management, asset realisation, and property distribution of the bankrupt JV.

A general principle to bear in mind is that, once any assets are contributed to the JV by a venturer, those assets become the property of the JV rather than remaining the property of the venturer. Assets contributed by a venturer are therefore no different from assets originating from or generated by the JV itself.

Venturers are not permitted to withdraw their capital contributions from the JV except following a liquidation process. Please refer to 9.1 Termination of a JV for further information on the statutory order of distribution of property in a non-bankruptcy liquidation process.

As a general principle, any residual property of the JV will be distributed to the venturers in proportion to their respective capital contributions to the JV. The venturers may, however, agree in the SHA on a mechanism allowing a venturer to take back assets that it contributed to the JV, subject in all cases to the statutory order of distribution of property.

Please refer to 9.1 Termination of a JV.