CONFIDENTIAL
ARTICLE 7
ARTICLE 13
The net profit of a joint venture shall be distributed between
the parties to the venture in proportion to their respective
shares in the registered capital
In the event of heavy losses, the failure of any party to a
joint venture to execute its obligations under the contracts or
the articles of association of the venture, force majeure etc.
prior to the expiration of the contract period of a joint venture,
the contract may be terminated before the date of expiration by
consultation and agreement
In cases of losses caused by breach of the contract(s) by a
party to the venture, the financial responsibility shall be borne
by the said party.
Article 4 states that "joint ventures shall take the form of a limited liability company". It also states that "the profits, risks and losses of a joint
venture shall "be shared by the partners to the venture in proportion to their contributions to the registered capital".
It is not easy to reconcile these two statements unless the latter phrase is
merely meant to mean that, in the event that all the equity capital is not
repaid in a winding up, the "shareholders" will bear the reduction in their
capital pro rata. The alternative construction of the latter phrase, which
would conflict with the former and with UK law is that, to the extent that there
is actually a deficiency as regards creditors, then the joint venturers would be
liable to make good such deficiencies pro rata to their contributions to the
registered capital. If this construction is correct then clearly the concept of limited liability would be an illusion.
Furthermore it would be interesting to know the full implications of Article 13 which, in essence, stipulates that if a joint venture fails because of heavy losses resulting from, inter alia, a breach of contract by one party then "the potential responsibility shall be borne by the said party". It would probably be zadro to think that the Chinese concept of breach of contract and
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