Structuring Your China Joint Venture: Key Lessons from General Manager Contracts and Shareholder Agreements

If you are used to appointing a Geschäftsführer under German law, the role of a General Manager in a PRC company will feel fundamentally different, and the contract must reflect this.

The GM is an employee first. Unlike a German Geschäftsführer, the PRC General Manager does not automatically assume the status of a corporate organ. The GM does not acquire full power of representation simply by virtue of the title. From the very beginning, the GM is an employee of the company, and the relationship is governed by a labor contract subject to PRC employment law.

Separate the corporate appointment from the service relationship. The resolution by the shareholders or the board to appoint the GM is a corporate act. The contractual terms of the GM’s employment — compensation, duties, non-compete obligations, termination — are a separate, contractual matter. These two layers must be clearly distinguished in your documentation. Conflating them, as one might do with a German gesellschaftsrechtlicher Anstellungsvertrag, creates ambiguity and legal risk under PRC law.

Practical tip: Define the scope of the GM’s authority explicitly in the General Manager Contract and align it with the articles of association. Do not assume that the title alone confers any particular power.

For German investors, one of the most effective market-entry strategies is to partner with an established Chinese company in the relevant industry and form a joint venture. The Shareholder Agreement governs the internal relationship between the parties — it is, in effect, the private constitution of the partnership.

Remember: a shareholder agreement alone is not enough. The SHA regulates the rights and obligations between shareholders on a contractual basis. However, its provisions only gain corporate-law effect once they are incorporated into the company’s articles of association and registered with the relevant authorities. This applies, for example, to the business scope of the JV entity — a matter that must be formally registered and cannot simply be agreed upon between the parties.

Practical tip: When drafting the SHA, work backwards from the articles of association. Every material provision of the SHA should have a corresponding clause in the articles, and vice versa.

Cross-border JV structures are subject to a complex and evolving regulatory environment. Two areas deserve particular attention:

Foreign exchange and capital contribution rules. PRC foreign exchange regulations determine how international capital may be brought into the country. In addition, the ratio between Total Investment and Registered Capital is subject to statutory thresholds that effectively cap the proportion of debt financing available to the JV. These constraints must be factored in at the structuring stage, not after the shareholder agreement is signed.

Technology transfer restrictions. Recent amendments to PRC regulations governing the export and transfer of core technologies came into effect on 1 July. Companies must ensure that the JV structure does not inadvertently result in an unauthorized or prohibited transfer of key technology. This is an area where compliance failures can have serious consequences, including regulatory penalties and the unwinding of the transaction.

The legal frameworks governing corporate structures in Germany and China are in some respects similar and in others fundamentally different. Navigating this regulatory patchwork – from PRC Company Law and foreign investment rules to German corporate governance standards — requires advisors who understand both systems in depth.

Our team combines deep expertise in German corporate and commercial law with hands-on experience in PRC regulatory practice. Whether you are structuring a new joint venture, reviewing existing governance documents, or assessing the compliance implications of recent regulatory changes, we are here to help.