For all enterprise registered with the government authority in China, a legal representative shall be designated. The name of legal representative shall be registered with the government authority and printed on business license. But what responsibility the legal representative shall take? This is a question often asked by legal representative of foreign-invested enterprises. In this article, we will make a general review on the regulations with respect of responsibilities of legal representative of an enterprise in China.
According to PRC Law of Enterprise, enterprises set up in China are legal persons. The legal representative of the enterprise shall be the chairman of the board of directors (“BOD”), executive director or manager in accordance with the articles of association.
The legal representatives of enterprises shall exercise their authority and perform their duties within the terms of reference prescribed by national laws, regulations and the articles of association, and shall represent corporate legal persons to participate in civil activities.
According to General Principles of the Civil Law of PRC (“Civil Law”) and the comments from the highest court of PRC, the enterprise (legal person) shall bear civil liability for the operational activities of its legal representative. Where economic loss is caused by mistakes of legal representative or other employees when conducting activities under the name of the enterprise, the enterprise shall bear the civil liability. After fulfilling its duties to third party, the enterprise can request compensation from legal representative or other relevant employees.
According to civil law and criminal law of PRC, for certain serious illegal activities such as non-compliance of tax law, or misconduct behaviors such as contract breaching, cheating in financial information or taxation which has ruined the interest of the state or other personnel, the enterprise (legal person), the legal representative and other relevant employees might all be punished. For the activities that constitute a crime, the legal representative and other related employees shall also bear criminal responsibilities.
The stipulations of Civil Law relating to the civil liabilities that the legal representative shall bear are listed below:
- Article 106, citizens and legal persons who breach a contract or fail to fulfil other obligations shall bear civil liability. Citizens and legal persons who, through their fault, encroach upon state or public property or the property or person of other people shall bear civil liabilities. Civil liabilities shall still be borne even in the absence of fault, if the law so stipulates.
2. Article 110, citizens or legal persons who bear civil liabilities shall also be held for administrative responsibilities if necessary. If the acts committed by citizens and legal persons constitute crimes, criminal responsibilities of their legal representatives shall be investigated in accordance with the law.
3. Article 49, under any of the following circumstances, an enterprise as legal person shall bear liabilities, its legal representative may additionally be subject to administrative sanctions and fined, and, if the offence constitutes a crime, criminal responsibilities shall be investigated in accordance with the law:
- conducting illegal operations beyond the range approved and registered by the registration authority;
- concealing facts from the registration and tax authorities and conducting fraud;
- secretly withdrawing funds or hiding property to evade repayment of debts;
- disposing of property without authorization after the enterprise is dissolved, disbanded or declared bankrupt;
- failing to apply for registration and make a public announcement promptly when the enterprise undergoes a change or terminates, thus causing interested persons to suffer heavy losses;
- engaging in other activities prohibited by law, damaging the interests of the state or the public interest.
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