Subsequent to the “Legal Representative in China: Basic Concepts”, we have prepared this article to brief you on the legal status of the legal representative in a Chinese company, which is also among the most-consulted questions we received as Chinese lawyers engaged in foreign investment for decades.
- Is it compulsory for a legal representative to sign a labor contract with the company?
Generally speaking, the relationship between the legal representative and the company is not labor relationship and is therefore not governed by labor law. In this case, there is no need to sign a labor contract. However, if the legal representative is also entitled to salaries from the company, a labor relationship is established between the legal representative and the company. Hence, a labor contract shall be concluded in this occasion.
2. Is a contract valid if it is signed by the legal representative without the official company chop?
A contract signed by the legal representative within his/her authority on behalf of the company within the business scope of the company is usually valid even if such contract is not affixed with the official company chop. For more information about the company chop, please refer to “Company Chops: Things to Know About Doing Business in China (II)”.
3. Is a contract valid if it is signed with the official company chop without the legal representative’s signature?
Yes, it is valid. According to Article 490 of the Civil Code of the PRC, where the parties conclude a contract in the form of a written agreement, such contract is formed at the time when the parties all sign, stamp, or put their fingerprints thereon. As can be seen, either the legal representative’s signature or the official company chop will do.
4. Is a contract binding on the company if such contract is concluded by the legal representative beyond his/her authority without permission?
According to Article 504 of the Civil Code of the PRC, where the legal representative of a legal person or the responsible person of an unincorporated organization concludes a contract ultra vires, such an act is effective and the contract is binding on the legal person or the unincorporated organization unless the other party knows or should have known that the legal representative or the responsible person acts ultra vires. Given this, the contract shall be valid unless the other party knows or should have known that the legal representative acts ultra vires.
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 email@example.com.