China’s Qualification Requirements for Legal Representatives and other Key Positions

April 18, 2012 Posted by China Briefing Reading Time: 6 minutes

By Eunice Ku

Apr. 18 – Through the Company Law and other related regulations, China maintains various legal mechanisms clarifying the types of individuals that can qualify to hold the most senior positions of a foreign invested enterprise (FIE). Below, we list these qualification requirements for the legal representative as well as those stipulated for the other key positions of an FIE.

Qualification to be a legal representative
Every business established in China, foreign or domestic, is required to designate a legal representative. The legal representative is, by definition of his or her role, one of the most powerful people in a foreign-invested enterprise. Yet this power comes with heavy responsibility and, if a single individual in a foreign-invested enterprise is to be held accountable for company actions, that person is more likely than not the legal representative.

The people eligible to fill the role of legal representative vary by FIE type. In a wholly foreign-owned enterprise (WFOE), the chairman of the board of directors (or executive director in lieu of a board) or the general manager acts as the legal representative of the company. In a joint venture (JV), the legal representative can generally be either the chairman of the board of directors or the general manager. However, in practice, local authorities may not accept a general manager concurrently serving as a legal representative, due to a conflict between the China’s Company Law and the JV Regulations.

An individual cannot serve as a legal representative if he/she:

Lacks capacity for civil conduct or has limited capacity for civil conduct;
Is undergoing criminal punishment or a criminal coercive measure is being enforced against him/her;
Is being wanted by public security organs or state security authorities;
Has been sentenced to criminal punishment for embezzlement, bribery or financial fraud or for disrupting the order of the socialist market economy, and not more than five years have elapsed since the expiration of the enforcement period;
Has been sentenced to criminal punishment for another crime, and not more than three years have elapsed since the expiration of the enforcement period;
Has been deprived of political rights for committing a crime, and not more than five years have elapsed since the expiration of the enforcement period;
Served as the legal representative, director or manager personally responsible for the bankruptcy liquidation of an enterprise due to mismanagement, where not more than three years have elapsed since the date of completion of the bankruptcy liquidation;
Served as the legal representative of an enterprise that had its business license revoked for violating the law, for which he/she bears personal liability and not more than three years have elapsed since the date of revocation of the business license;
Is burdened with relatively large amounts of personal debts past due but have not been settled; or
Under any other circumstances prescribed by law and the state council.

Qualifications to accept a key position in an FIE
A person who falls under any of the following categories cannot be appointed as a supervisor, director, general manager or other senior management personnel of a company, according to Article 147 of Company Law:

Does not have civil capacity or has only limited civil capacity;
Has been convicted of any criminal offense in the nature of corruption, bribery, conversion, misappropriation or disrupting the economic order of the socialist market and five years have not elapsed since any penalty imposed has been completed, or any person who has ever been deprived of his political rights due to any crime and five years have not elapsed since the penalty imposed was completed;
Former director, factory director or manager of a company or enterprise which has been declared bankrupt and liquidated in circumstances where he was personally responsible for the bankruptcy of the company or enterprise, and three years have not elapsed since the bankruptcy and liquidation of the company or enterprise was completed;
Former legal representative of a company or enterprise which has had its business license revoked and has been ordered to close its business operations due to any violation of law in circumstances where the former legal representative was personally liable for the revocation of the business license and three years have not elapsed since the date of revocation; or
Has significant unpaid debts.

Any election or appointment of any supervisor, director, general manager or other senior manager made in violation of the provisions of this article shall be invalid. Any existing supervisor, director, general manager or other senior manager the appointment of whom would violate the provisions of this article shall be removed from their post.

Representative office key positions

Legal representative equivalent
The chief representative can generally be considered the representative office equivalent of a legal representative. The “RO Regulations” effective March 1, 2011 are quite broad in their definitions of the chief representative’s role and liability.

These regulations simply state that an RO should designate a chief representative to sign the application documents for the registration of the RO and observe provisions of laws and administrative regulations on entry-exit, residence, employment, tax payment and foreign exchange registration.

An individual falling under any of these categories cannot act as a chief representative:

A person who has records of being imposed with criminal penalties for harming China’s national security or public interests;
A person who was a chief representative or representative of a representative organization of which the establishment registration has been cancelled or the registration certificate has been revoked in accordance with the law, or which has been ordered to close down by the relevant department in accordance with the law, due to involvement in illegal activities such as harming China’s national security or public interests, and it has been no more than five years from the date of such cancellation, revocation or ordered closing down;
Other circumstances stipulated by the Administration of Industry and Commerce.

In addition to a chief representative, an RO can also nominate multiple general representatives. In practice, it is often easier for general representatives to gain work permits compared to general employees. Including the chief representative and general representatives, each RO can hire at most four foreigners. A company can, however, have several ROs across different cities in China, each with four foreigners.

Portions of this article were taken from the April issue of China Briefing Magazine, titled “The China Manager’s Handbook.” Stories of expats having their name added to the Administration of Industry and Commerce “blacklist,” or being “trapped in China” for company legal proceedings, encourage a careful consideration of key positions in an FIE. This issue of China Briefing Magazine aims to shed a little light on this topic.

“The China Manager’s Handbook” is temporarily available as a complimentary PDF download for the month of April on the Asia Briefing Bookstore.

Dezan Shira & Associates is a boutique professional services firm providing foreign direct investment business advisory, tax, accounting, payroll and due diligence services for multinational clients in China, Hong Kong, India, Singapore and Vietnam. For further information on the risks and responsibilities you have as a foreign manager in China, please email china@dezshira.com, visit our web site at www.dezshira.com, or download our brochure here.

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