Understanding the potential legal liabilities the legal representative may assume is important to the foreign investors considering the protection of their own interests and the lawful operation of the company. According to relevant laws and regulations, the legal liabilities a legal representative may assume can be divided into civil liabilities, administrative liabilities and criminal liabilities.
As Chinese lawyers experienced in foreign investment, we will first introduce the potential civil liabilities a legal representative may assume in this article and deal with the other two types of liabilities in the following articles.
1. Fault Performance
According to Article 62 of the Civil Code of the People’s Republic of China, where a legal representative of a legal person causes damage to others while carrying out his duties, the civil liability thus incurred shall be assumed by the legal person. After assuming such civil liability, the legal person is entitled to indemnification by its legal representative who is at fault in accordance with law or its articles of association.
As per the aforesaid provision, the company shall bear the civil liability for damage to the others caused by the legal representative while performing his duties as a rule. However, if such damage is caused by the legal representative’s fault, the company may be indemnified by the legal representative against such civil liability.
2. Violation of Statutory or Contractual Obligations
According to Article 149 of the Company Law of the People’s Republic of China, where any director, supervisor or senior manager violates any law, administrative regulation or the articles of association during performing his duties, if any loss is caused to the company, he shall be liable for compensation.
Since the legal representative is the chairman of the board of directors, executive director or manager of the company, if the legal representative violates the provisions of relevant laws and regulations or the company’s articles of association while performing his duties and thereby causes losses to the company, the legal representative shall be liable for compensating the company for such losses.
3. Damage to Shareholders’ Interests
According to Article 152 of the Company Law of the People’s Republic of China, if any director or senior manager damages the shareholders’ interests by violating any law, administrative regulation or the articles of association, the shareholders may file a lawsuit in the peoples’ court.
Likewise, if the legal representative causes damage to the shareholders’ interests in violation of relevant provisions, the legal representative shall compensate the shareholders concerned therefor.
As Chinese lawyers experienced in the field of foreign investment for a long time, we have assisted many foreign invested enterprises in their legal issues related to legal representatives. If you have any legal questions regarding the legal representative, please feel free to contact us via administrator@35.93.49.201.