Following the articles “Legal Representative in China: Basic Concepts”, “Legal Representative in China: Legal Status” and “Legal Representative in China: Qualification”, we would like to share with you our ideas about the management of and restraints on the legal representative in China from the perspective of Chinese lawyers in the field of foreign investment.
1. Is it compulsory to specify the name of the legal representative in the company’s articles of association?
The articles of association shall specify whether the chairman of the board of directors, the executive director or the manager shall serve as the legal representative, but specifying the name of the legal representative is not a must. Therefore, it is at the company’s option whether to specify the name of the legal representative or not.
2. Can a person serve as the legal representative of two or more companies at the same time in China?
A person being the legal representative of more than one company is not directly in violation of the provisions of the Company Law of the People’s Republic of China. Please be noted that the legal representative is the chairman of the board of directors, the executive director or the manager of the company, and the directors and the manager of a company shall abide by the relevant provisions for qualifications and obligations in the Company Law of the People’s Republic of China and the company’s articles of association. For instance, Article 148, Paragraph 5 of the Company Law of the People’s Republic of China stipulates that directors and senior management may not operate similar business of the company for which he works for himself or for any other persons; a company’s articles of association may stipulate that without the consent of the shareholders’ meeting the legal representative may not concurrently serve as the legal representative of another company that competes with the company.
3. What can companies do to prevent the legal representative’s abuse of authority?
Restricting the legal representative’s representation in the company’s articles of association is one of the most important ways to prevent the abuse of authority. Another effective measure is to impose constraints on the behavior of the legal representative by the board of directors or the shareholders’ meeting.
It should be noted that according to the provisions of Article 61, Paragraph 3 of the Civil Code of the People’s Republic of China, the restriction on the representation of the legal representative by the articles of association of the legal person or such legal person’s organ of authority shall not be asserted against a bona fide third party. Therefore, if the behavior of the legal representative can be reasonably considered by such bona fide third party to represent the behavior of the company, the company shall be liable therefor, even if relevant restrictions on the representation are provided for in the articles of association. In conclusion, restrictions in the articles of association can only reduce the risk of abuse of authority by the legal representative, but cannot eliminate all risks.
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 firstname.lastname@example.org.