How to Find the Perfect Supervisor for Your Company in China
You want to be successful with your company or wholly foreign-owned enterprise (WFOE) in China? Then one thing should not be missing in your company’s structure: the supervisor, or supervisory board. Practice shows that the supervisor, an external expert who provides suggestions and communicates with the management on an equal footing, has a positive effect on the company’s development. For companies and WFOE in China, a supervisor is mandatory according to the Chinese Corporate Law. However, rather than being a simple formality, appointing the right supervisor is, although often underestimated, quite important for the company’s performance. Companies often make mistakes when appointing their supervisor, not knowing how to make an ideal choice and what factors to consider for success in the Chinese business environment. To help you make the right decision, we share some advice and frequent mistakes that companies should be aware of.
What exactly is a supervisor, or a supervisory board?
Depending on the size of the company, either a single supervisor or a supervisory board of at least three members should be appointed. Primarily, the supervisor is responsible for monitoring the company’s financial situation and inspecting the performance of its management. In short, the supervisor makes sure that everything goes according to plan and that the management does not act contrary to the interests of the company. Directors and members of management are therefore not allowed to fill the position of the supervisor. The supervisor’s term of office is 3 years. It is possible to reappoint the Supervisor after the first term.
Overview of the Supervisor’s Functions
The supervisor must fulfill a handful of functions to keep the company’s performance on track. The first one is to oversee the company’s financial affairs. Therefore, the supervisor regularly checks the company’s financial reports. Second, the supervisor is responsible for monitoring the performance of directors and management board. In doing so, he or she ensures that the management is carrying out their duties appropriately and, if necessary, may propose the dismissal of a director or member. This reduces the risk that directors or members disobey laws, violate administrative rules or articles of association. In case of any misconduct, the supervisor must advice the board member to take corrective action, or in the case of law violations, file a charge in accordance with Article 151 of the Company Law. The supervisor may also appoint interim shareholder’s meetings and preside over shareholders‘ meetings. At the meetings, the supervisor actively provides evaluations and suggestions to the company. Depending on the needs and strategy of the company, other functions and duties for the supervisor can be defined in the articles of association. Below we share a list of the most important supervisor functions.
Studies and experiences from companies show that the supervision and contribution of external expertise through the supervisor can increase the success of a company. This is especially true for companies in China that have to deal with complex cultural and legal requirements. Especially in challenging situations or with sudden changes of the business environment, the additional assessment and review of the supervisor can be a great advantage.
Common Sources of Error When Choosing a Supervisor
To get the most benefit from the function of the supervisor, it is crucial to choose the right person for the job. Foreign companies in China often make the mistake of choosing a supervisor with too little knowledge on China, which can be a great disadvantage for controlling and guaranteeing the company’s compliance with specific Chinese regulations. An expert on Chinese law and business environment can be extremely helpful as a supervisor to give suggestions for optimization, identify risks in advance and bring in insider knowledge. However, it is equally problematic to choose a supervisor who is familiar with Chinese law but not with your own country’s business culture and laws. Therefore, you should make sure that the supervisor for your company in China has enough international experience and appropriate language skills. You should also look at his or her supervising experience. Ideally, your supervisor has already supported several companies such as your own and is familiar with the supervising role. Below we have created a checklist that can help you choose the right supervisor.
Changing the Supervisor
To change your supervisor, an application must be submitted to the Commerce Commission and the Administration for Industry and Commerce (AIC). Application documents, the power of attorney, and shareholder resolutions need to be submitted to both agencies. The proceeding usually takes about one month.
Supervising Expertise of Ecovis Heidelberg
If you have any questions regarding tax, accounting, auditing, or legal advice, please feel free to contact Ecovis Richard Hoffmann in Heidelberg or the ECOVIS Ruide China team. Ecovis Richard Hoffmann has also experience in being a supervisor in China. Through years of experience and specific knowledge of the German, international, and Chinese business environment, Richard Hoffmann has successfully supported several hundred companies to navigate through the complexity of legal, tax and compliance issues in China.