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 comes with numerous powers and responsibilities. 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 authorising legal representation and litigation of the company. At the same time, Ecovis’ advisors point out that legal representatives face potential compliance risks when the activities of the company (or their own actions) violate the law, administrative regulations or the company’s articles of association.
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 risks associated with this role. The legal representative may have to bear civil liabilities, be subject to additional 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.
Under certain circumstances, liability is established irrespective of 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.
Naturally, the rights of legal representatives are protected as long as they comply with laws, regulations and the company’s articles of association and act to protect the company’s interests in a diligent and loyal manner. However, in practice, China’s laws and regulations within its complicated legal environment can seem daunting and extensive for foreign companies and their legal representatives. Therefore, Ecovis Beijing provides an advisory service to ensure the compliance of our clients’ companies with external regulations and internal policies. Ecovis also advises individuals taking on roles as legal representatives, managers or board members in China on the compliance risks and suitable measures to manage and minimise these risks.