How to stay compliant as a legal representative in China in 2023
Every limited liability company registered in China must have a legal representative who represents the company in the exercise of its rights and obligations. This position entails numerous powers and responsibilities. Corresponding to Article 13 of the Company Law, this position may only be held by either the Chairman of the Board of Directors, the Company Manager, or the Executive Director. A legal representative is granted broad scope of authority in the company’s daily operations such as conserving the company’s assets, confirming transactions, and authorizing legal representation and litigation of the company. At the same time, legal representatives face potential compliance risks when the activities of the company (or acts of their own) violate the law, administrative regulations, or the articles of association of the company.
While it is important that companies protect themselves against misuse of the position by the legal representative, it is just as important that the individual taking over that position is aware of the compliance risk associated with this role. The legal representative may have to bear civil liabilities, be additionally subject to administrative sanctions or penalties, or even face criminal charges if the company is involved in actions considered illegal or beyond the approved range of operations. Restrictions or disciplinary measures also should not be underestimated.
Why Compliance Matters
Civil liability covers actions such as harming companies’ interest and compensation liabilities. If the legal representative is acting on behalf of the company, the company bears the resulting consequences. Hence, the company should also bear the civil liability.
Ensuring Compliance in Specific Areas
Under certain circumstances, liability is established no matter whether the crime was intended or not. In other words, even though a legal representative may not orchestrate a breach, he/she may still be found liable unless it can be proven that the legal representative was not aware of the harmful acts, did not participate in them, or voted against the decision at board meetings.
Of course, the rights of legal representatives are protected if they comply with the laws, regulations and the company’s articles of association and act to protect the company’s interests in a diligent and loyal manner. Yet in practice, China’s laws and regulations within its complicated legal environment seem daunting and extensive typically for foreign companies and their legal representatives. Therefore, Ecovis Heidelberg provides advisory service to ensure the compliance of our client’s companies with external regulations and internal policies. Richard Hoffmann is a successful supervisor for multiple companies operating in China and Germany. We also advise individuals taking on roles as legal representatives, supervisors or board member in China on the compliance risk and suitable measures to manage and minimize the risk.
How we can help you
At Ecovis Heidelberg & Ecovis Ruide Shanghai, our advisory activities are tailored to the requirements of internationally active enterprises that require tax advisors, accountants, auditors and lawyers. Our experts work independently, objectively and reliably. Ecovis Heidelberg is the trusted partner of several embassies and chambers of commerce in China. Our tax experts and legal advisors work closely together to ensure that our clients can obtain the highest profits from our in-depth knowledge and always receive the newest updates about changes in law or regulations in order to adjust their business faster than others. Our two locations in Germany and China permit us to adapt quickly to the needs of our costumers in order to facilitate cultural barriers and respond quickly to our clients needs. Contact us!