Welcome to the Latest Instalment of our Entity Essentials series!
Establishing an entity in China requires understanding a crucial role: the Legal Representative.
This position, typically filled by the company’s executive director, chairman, or general manager, is a statutory requirement for every enterprise in China. Given this role’s significant weight and potential risks, choosing the right individual as the legal representative is a crucial decision when establishing an entity in the Middle Kingdom.
The Power and Responsibility of a Legal Representative
Authority and Core Responsibilities
The legal representative has the power to act on behalf of the entity. Any work-related decisions they make are considered actions of the company itself, and their name is even inscribed on the entity’s business license.
Their authority enables them to:
- Bind the company to contracts and other legal obligations with their seal.
- Execute powers of attorney on the company’s behalf.
- Hold the company’s official seal used to sign transactions, contracts and legal documentation.
Liability
But remember, with great power comes great responsibility, or in this case, liability. This means that any liability – civil, criminal, or corporate – stemming from the company’s operations could fall squarely on the shoulders of the legal representative, including:
- Administrative penalties,
- such as personal fines.
- Criminal liability, possibly leading to charges and imprisonment.
Conversely, the actions of the legal representative can have direct legal consequences for the company.
Replacing a Legal Representative: Easier Said Than Done
If issues do arise, getting rid of the legal representative isn’t always simple. In most cases, a legal representative can’t be shown the door unless they willingly step through it. This is because they need to stamp their own termination agreement.
For this reason, various law firms recommend having legal representatives sign and stamp undated termination-related documents as a precaution.
Can You Be Your Own Legal Representative?
You may be contemplating whether you could assume this role yourself. The short answer is “Yes, but tread carefully.”
Chinese law doesn’t generally require the legal rep to be a Chinese national.
There are some sectors where local or national regulations impose additional restrictions or requirements. However, a nominee from your parent company abroad is perfectly acceptable in most sectors. But before you don the mantle, consider the journey ahead.
It’s a role that demands not just presence but expertise. The role requires frequent travel to China and an understanding of the labyrinth of compliance issues. And as mentioned, if your entity violates regulations or becomes involved in commercial disputes, the legal representative may face consequences.
In the most extreme scenarios, Chinese courts can bar the representative from leaving the country, entering it, or renewing their visa.
The China Desk: Your Solution to Legal Representative Challenges
Opening a company in China requires careful navigation of legal complexities, especially when selecting your legal rep. Choosing the right individual is a mission-critical decision.
But what if you could avoid the intricacies of this process altogether?
If your primary goal is to manage your supply chain, setting up an entity in China might not be the right option. There are alternatives that can simplify the process, and this is where The China Desk by Kinyu can add tremendous value.
The China Desk offers a tailored solution that bypasses the need for a traditional legal representative, providing a workspace for your team members and ensuring compliant hiring practices. By partnering with The China Desk, you can focus on your core business objectives without getting entangled.
If you want to learn more about how The China Desk can work for you, please book some time with one of our team members, or download a case study!
