Who is the Legal Representative for  a Company?

The legal representative of a firm is defined as follows under Article 38 of the People's Republic of China's General Principles of Civil Law:

"The legal representative of a legal person is the person with management responsibility who exercises power on behalf of a legal person in line with legislation or the conditions of its charter."

A Legal Representative is also required for foreign-invested firms in China. The legal representative has a dual identity and status: internally, he or she is accountable for corporate operations and has decision-making and managerial power; externally, he or she represents the firm in signing business transactions. As a result, it's critical to understand the rights and responsibilities of legal representatives and to designate the appropriate person to be the legal representative for a foreign-invested company.

Responsibilities of the Legal Representative

Because the Company Law does not precisely define the scope of the legal representative's abilities, the person in that position has a wide range of authority and leverage. This authority includes, but is not limited to, the right to represent his firm to third parties in nearly any capacity, including the ability to bind the company to a contractual obligation. In addition, the legal representative is responsible for managing and arranging the company's activities, which may include calling and presiding over shareholder meetings, executing legal transactions, and executing powers of attorney on the company's behalf, to mention a few.

Furthermore, as the legal representative, he or she has fiduciary obligations to the business that he or she represents, including the duties of honesty and diligence, as stated in Article 148 of Company Law. To that aim, some behaviours are expressly forbidden, such as misappropriating business money, lending them without first receiving the required approval, and mixing corporate funds with personal cash. Furthermore, the legal representative's responsibility of faithfulness and diligence mandates that the legal representative operate in a sensible and ethical way in order to preserve the company's assets.

The legal representative's actions within the extent of permission are assumed to be those of the corporation, and so the company is held accountable.

Liabilities of Legal Representative in China

Legal representatives are held to a greater degree of care and competence under Chinese law than other employees, and they might face civil, administrative, and even criminal culpability for the company's and their own improper activities. As a result, the legal representative may be potentially exposed to the company's fines and penalties, and, more crucially, the legal representative's responsibilities extend to bankruptcy.

A legal representative's responsibilities are further broken into four categories:

Criminal Liability

- If a firm is found to be criminally guilty, fines will be levied on its officials who were "directly in control" and/or "directly responsible" at the time the illegal action occurred. This is provided under the PRC criminal law.

In this view, unless the legal representation as the entity's major principal engages in the crime and is directly in command of or liable for the entity's wrongdoing, the legal representative will not face criminal charges.

Civil Liability

- The legal representative's activities are generally considered corporate actions, which means the firm is responsible for any civil liability deriving from the legal representative's conduct.

If the legal representative breaches the business's duty of diligence, loyalty, and secrecy, resulting in losses, the company may seek reimbursement from the legal representative.

Administrative Liability

- In addition to any sanctions meted out to the corporation, a legal representative might face fines and penalty if their company breaks any PRC regulations. 

The following are examples of instances in which a legal representative may be held accountable for administrative liability:

1) engages in illicit activities outside of the business scope of its company which has been allowed by and registered with the registry authorities;

2) commits fraud by concealing information from the register and tax authorities;

 3) withdraws funds or conceals property in order to avoid debt payments;

 4) after being dissolved or declared bankrupt, disposes of property without authorisation;

 5) fails to apply for registration and make a public statement immediately when it changes or ceases, causing significant damages to interested parties; or

 6) participates in other illegal acts that harm the State's or public interest.

Dishonesty and Discipline

Due to the company's failure to perform the payment obligations determined by the effective legal documents within the period specified by the court, the legal representative may be prohibited from enrolling their children in high-fee paying private schools, tours, vacations, taking high-speed trains and aircraft, and other high-spending behaviours.

Conclusion

In China, unlike most western countries, the post of legal representive is compulsory. A corporation's legal representative represents the firm in all material elements, such as entering into contracts and engaging in other civil actions on behalf of the company.

Normally, the legal representative will not face criminal charges unless they participate in and play a significant role in the entity's crime and are found to be in charge of or accountable for the entity's crime. Overall, the likelihood of being prosecuted for operating as a legal representative or supervisor of a company is low if he or she diligently manages their roles.

Expand into China without setting up a company, by employing or relocating key staff to take a first step in exploring the market. A professional employer organization (PEO) service can act as the official employer of record (EOR) for your staff in China while you expand your business. With the support of our trusted partner network, we can facilitate local hiring and employment without the time and cost of setting up a legal entity in country.

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