This is the 5th video of the Investing In China Chapter.

Today we talk about two roles that are essential for every company, which is the director and supervisor. I will explain what they are, and whether it is possible or not for one person to fill both roles.

Let’s first talk about the director. The director is elected by the shareholders. If there is only one director, then that person is called the executive director. If there are more than 3 directors, a board of directors is formed, and one person acts as the Chairman of the board. The term of a director is 3 years, and there can be multiple re-elections, one after another. The director is in charge of appointing managers, formulating business and investment plans, and internal management systems. 

Moving on to the supervisor, this person is in mainly in charge of inspecting the company books, and supervising the directors and other high ranking officials. You may think of this person as the anti-corruption bureau which supervises all government bureaus. Directors may be corrupt and steal company money, or do something harmful to the company’s interests. This is when the supervisor comes in and calls for a shareholders meeting to kick the director out. The supervisor may not be the legal representative nor director at the same time, because to have a person to monitor himself would be an ultimate set-up for failure. Similar to the director, the term of a supervisor is also 3 years, and he can be reelected multiple times.

Therefore, in order to incorporate a company, you will need at least 2 people. One person to act as the legal representative and director at the same time, and another person to act as the supervisor. Note that all these roles do not need to be shareholders, so if you are the sole shareholder of a company, just ask one of your good friends to act as supervisor. All three roles may be paid roles or unpaid roles, depending on your company structure. Company law is extremely flexible regarding internal company structure and offers great freedom. 

One other thing that you should know is that the position of a director or supervisor cannot be inherited. When the director dies, it does not pass on to his son, unlike the shareholder status. When a shareholder dies, the shares get inherited by that persons predecessors, and they automatically become the new shareholders of the company. So when a director dies, his shares go to his children, but not the role. A new director will be reappointed by the board of shareholders instead, or not replaced at all if the board wishes so.

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