Risk Control For Legal Representative in The Company Under Chinese Law
Legal Representative is certainly a simple company system in current China Corporate Law. That’s, any new established firm should appoint an all natural person as the business’s legal representative, who may action on behalf of the business. The legal representative could be either Chinese or foreigner.
With regards the circumstances for performing as a legal representative, under current rules, the following persons can’t be appointed as legal representative:
In consideration of the particular position of legal representative in a company, and also the power he’s granted and the responsibility he shall take, in the problem of selection and appointment of legal representative, the business shall need to strike a balance between power distribution and risk control.
Under current corporate regulation, the legal representative of a organization appointed under its content articles of association will be its chairman of the table of directors, its acting director or its supervisor. Therefore, in most cases, legal representative, generally, is primary people in a organization. However, in some instances, to avoid potential risk, the trader of the company could also appoint nominal legal representative, whose name is definitely lent and who offers nothing at all with company’s business.
From the perspective of legal representative, although he’s granted with company power and may act with respect to the business, he shall probably take civil, administrative or criminal liability because of company behavior, or even is at the mercy of emigration restrictions. Out of this stage, potential risk will there be for a legal representative.
We. Potential legal risk for a legal representative
Generally speaking, whenever a legal representative acts relative to the laws, administrative regulations and articles of association of a company, such acts will be deemed acts of the business and the liability arising away of such activities are assumed simply by the company. As a result, generally a legal representative will not consider any personal responsibility for such works.
However, in special situations, because of violation of regulations, regulation and content of association simply by legal representative, or in special situations, a legal representative shall take personal liability the following:
Potential Civil Liability of a Legal Representative
A legal representative shall take civil liability in the next two situations:
The act of a legal representative represents the business and any consequences associated with the act will be assumed by the business itself. Nevertheless, if the action of a legal representative is certainly illegal, regulation or content articles of association, which damages company’s interest, the business is entitled to demand the legal representative to pay any reduction from the misconduct.
The violation of fiduciary duty and duty of care to the business herein refers to the problem in which a legal representative takes benefit of his position by obtaining bribes or any additional illegal gains, or misappropriating company assets for personal interest. The legal representative shall compensate to the business for any loss because of the illegal act.
Potential Administrative Liability of a Legal Representative
Under the following circumstances, except company liability assumed by the business itself, its legal representative could be at the mercy of administrative sanctions, fines and if the offences takes its crime, criminal liability will be investigated:
a. conducting illegal functions beyond the number approved and authorized by the sign up authority;
b. concealing specifics from the sign up and taxes authorities and practicing fraud;
c. secretly withdrawing money or hiding real estate to evade repayment of debts;
d. losing assets without authorization following the company is dissolved;
e. failing to make an application for sign up and make a open public announcement promptly when the business undergoes a transformation or termination, hence causing interested people to suffer significant losses;
f. engaging in alternative activities prohibited for legal reasons, damaging the passions of the condition or the general public interest.
Unless the legal representative can verify he was not alert to such acts and had not been subjectively, responsible or delinquent in fulfilling his duty, he might bear administrative liability for the acts of the business that’s in violation of regulations and regulation.
Potential Criminal Liability of a Legal Representative
The criminal liability of a legal representative, in the event of company crime, is a particular liability connected with company crime, where in fact the legal representative belongs to somebody who is directly in control or person is straight in charge of the crime. For instance, according to article 153 of criminal laws, in the event of company smuggling, aside from the great which is normally imposed on the business, the people who are straight in control and the people who are directly in charge of the crime will be sentenced to set term imprisonment of only 3 years or criminal detention; if the situations are serious, they will be sentenced to set term imprisonment of no less than three years however, not more than a decade; if the situations are specially serious, they will be sentenced to set term imprisonment of no less than 10 years.
Although the laws usually do not supply the scope of the word “persons who are directly in control and one who is directly accountable”, in legal practice, a legal representative is often deemed to be within such scope and you will be found responsible for the criminal acts committed by the business.
There are other company crimes in which a legal representative could be at the mercy of criminal liability, including however, not limited by, crimes of manufacturing and selling toxic or harmful foodstuff, crime of falsely declaring registered capital, crime of false capital contribution, or withdrawing capital contribution upon registration, crime of issuing stock or bonds by fraudulent means, crime of presenting false financial record, crime of impairing liquidation, etc.
Compulsory Measures that may connect with a Legal Representative
In one of the next circumstances, a legal representative could be at the mercy of compulsory measures:
II. Preventing legal risk to a optimum extent
For the legal risk a legal representative might face, the next measure will be adopted to lessen the occurrence of such risk: