What do you risk by being a legal representative in China ?

Being the legal representative of a Company always comes with legal risks. China is no exception. The Anti-Monopoly Law, Civil Law and Company Law provide us with details on this situation.

First, let us remind of what a legal representative is : under Chinese law, every foreign company with an intention to carry out business through an entity registered in China must have a "legal representative". This person is legally representing the company, and for a Sino-foreign contractual joint venture or equity joint venture, it should be the Chairman of the Board of Directors. This position does not amount exactly to that of a CEO, though the CEO can be the legal representative as well.

Concerning the Civil Liabilities ; the Company Law tells us that as long as the legal representative acts in compliance with the law and the articles of association of the company, the company will endorse the civil liabilities for the business activities conducted by its legal representative. As such, the legal representative will not be considered liable for his actions under these terms. But if he crosses the line by breaking the law, even if authorized to take such actions by the company, he may be liable for the losses suffered by the company if they are found to be caused by his intentional fault or gross negligence.

The Anti-Monopoly Law requires that the employees of a company placed under a government investigation provide full support and cooperation. The legal representative can be considered personally liable for failing to cooperate or obstructing the investigation process (for example : not provide required materials or information, render false materials or information…). The authorities have the power to impose a personal fine of up to RMB 100,000 at their absolution discretion, depending on the gravity of the non-cooperation. More seriously, breaching individuals may also face criminal charges under the PRC Criminal Law.

Sometimes, a fear for Westerners is to be imposed coercion measures as a legal representative. Only the PRC Courts or tax authorities have the authority to impose compulsory measures against the legal representative of the company. The possibilities for such measures are very restricted, and it is unlikely that the legal representative of a company under anti-monopoly investigation would be subject to detainment or arrest.

To conclude, as a legal representative, you must always be very careful not to do any intentional fault or negligence. Because, if revealed during an investigation, it might not only bring potential personal liabilities on individuals, but also expose the company to further liabilities if the legal representative is found to play a key role in corporate misbehavior.