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:
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:
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:
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 email@example.com, visit our web site at www.dezshira.com, or download our brochure here.
Doing Business in China
Our 156-page definitive guide to the fastest growing economy in the world, providing a thorough and in-depth analysis of China, its history, key demographics and overviews of the major cities, provinces and autonomous regions highlighting business opportunities and infrastructure in place in each region. A comprehensive guide to investing in the country is also included with information on FDI trends, business establishment procedures, economic zone information, and labor and tax considerations.
Internal Control and Audit
This issue of China Briefing Magazine is devoted to understanding effective internal control systems in the Chinese context and the role of audits in detecting and preventing fraud.
Annual Compliance for FIEs
Prior to distributing and repatriating profits, foreign-invested enterprises must complete annual compliance, involving an audit, tax filing and inspection. These procedures are not only required by law, but are a good opportunity to conduct an internal financial health check. Also in this issue, we take a look at individual tax filing procedures for expatriates living and working in China.
The Foreign Corrupt Practices Act and its Impact on China Subsidiaries
This issue of China Briefing Magazine is dedicated to helping companies understand the Foreign Corrupt Practices Act and establish controls to prevent (and, if necessary) resolve FCPA noncompliance.
When Expats Get Blacklisted in China
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