Shenzhen WFOE Legal Representative

Shenzhen Company Formation Service
Hotline: 86-755-82143348, Email: amyhuang@citilinkia.com

The Shenzhen WFOE legal representative can be the supervisor of the enterprise , that can in the charge of the enterprise , who is the legal representative can be the commander of WFOE in Shenzhen.

The main role of the supervisor is to safeguard and supervise the operation of a company and exercise supervision over the work of directors and senior management. The Company Law gives supervisors an array of powers, such as inspecting the company’s finances, supervising the company directors and senior managers, recommending dismissal of directors or senior managers who violate laws or damage the company’s interests, proposing shareholder meetings, and any other powers specified in the company’s articles of association.

The role of supervisor is very relevant to the potential liabilities of the legal representative as they are permitted to supervise and constrain the legal representative in order to reduce the potential risks of a rogue legal representative acting on behalf of the company.
Basic requirements and selecting a legal representative

When choosing a legal representative for the first time, foreign investors typically choose either an existing employee (often lacking in Shenzhen experience) or a new Chinese recruit (often lacking familiarity with the investor’s culture, policies, decision-making procedures and home-country compliance regulations). Foreign investors should select their legal representative carefully, and the legal representative should be made aware of the responsibilities and liabilities that come with the position.

Selecting an existing employee is often the favored route as the individual is familiar with the company’s culture and can be trusted and relied upon. Frequently, the preferred choice for legal representative is a director of the parent company since they also hold separate duties to the parent company under the laws of its place of establishment. The investor may then select a different person with greater local market experience as general manager.

Legal representative’s powers and responsibilities

Acting (legally) to conserve the company’s assets;
Executing powers of attorney on the company’s behalf;
Authorizing legal representation of and litigation by the company;
And executing any legal transactions that are within the nature and scope of that company’s business.

Legal representatives are held by Chinese law to a higher standard of care and competence than other personnel, and they can face civil, administrative and even criminal liability for wrongful acts – both the company’s and their own. Accordingly, the legal representative may be subject to fines and penalties accrued by the company and, importantly, the liabilities of a legal representative extend to bankruptcy.

It is also critical to be aware that a company will generally be held liable for the unauthorized actions of a rogue legal representative. The Contract Law of the People’s Republic of Shenzhen specifically provides that “[i]f the legal representative … of a [company] creates a contract in excess of authority limits, such representative action is valid except where the counterparty knows or should know that it exceeded authority limits.”

Generally speaking, a company’s articles of association and related corporate documents, filed with the local Administration of Industry and Commerce, set the limits of the authority of its legal representative. However, in practice, counterparties may often argue that they are unable to view these documents to determine the legal representative’s authority. In order to avoid any difficulties it is important for companies to specifically limit a legal representative’s authority in the articles of association in order to minimize the risk the legal rep may expose the company.

The legal representative’s activities are deemed as activities of the company, which means that any civil liabilities arising from the legal representative’s actions are borne by the company. However, the company may claim damages from the legal representative for any losses caused by him/her.

Administrative liability
A legal representative could be subject to fines and punishment if their company violates any PRC laws, in addition to any punishments meted out to the company. If the situation is serious, the legal representative may be subject to criminal liability.

Criminal liability
The PRC criminal law imposes criminal liability on both the individual and the company who are in charge of, or responsible for, a company which commits a crime. As the main principal of the company, the legal representative will not be pursued with any criminal liability unless he/she participates in the crime and is directly in charge of or responsible for the crime of the company.

Recommendations
Careful consideration should be given to the selection of a legal representative.The articles of association should sufficiently limit the legal representative’s powers.The legal representative should be required to sign and chop an undated termination-relateddocuments before being appointed – termination of an uncooperative legal representative can be blocked if the outgoing legal representative does not sign the required documents as they need to approve their own termination documents.Companies should control the legal representative’s chop and establish procedure whereby chop use is closely monitored.

Contact Us
For further queries, please do not hesitate to contact ATAHK at anytime, anywhere by simply calling Shenzhen hotline at 86-755-82143348, or emailing to amyhuang@citilinkia.com.