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What’s a Legal Representative?
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Today, let’s talk about the concept of Legal Representative, for which, no real equivalent concept can be found in common law countries.
According to Civil Law of PRC, each company incorporated in China has to have one legal representative, which is the person who acts on behalf of a company in exercising its functions and powers according to the law and the company’s articles of association. In other words, a legal representative is a natural person appointed to act on the company’s behalf. The legal representative could be the company’s Chairman, Executive Director (if no Board of Directors) or General Manger.
It means, the legal representative is entitled to execute contracts or handle transactions on behalf of the company and the company will bear the consequences.
However, being a legal representative does not only mean power and glory. Legal representatives are also responsible for the consequences of the company’s activities. This means that holding this position also requires undertaking substantial risk. Legal representatives will bear civil, administrative and even criminal liability for wrongful acts – both the company’s and their own.
(1) conducting illegal operations;
(2) concealing facts from the registration and tax authorities and practicing fraud;
(3) secretly withdrawing funds or hiding property to evade repayment of debts;
(4) disposing of property without authorization after the enterprise is dissolved, disbanded or declared bankrupt;
(5) failing to apply for registration and make a public announcement promptly when the enterprise undergoes a change or terminates, thus causing interested persons to suffer heavy losses;
(6) engaging in other activities prohibited by law, damaging the interests of the state or the public interest.the legal representative would face administrative sanctions, fines and even bear criminal responsibility.
Civil Law also specifies that the company could claim for compensation if it suffers loss because of the legal representative’s wrongful act.
The Criminal Law of PRC contains more detailed provisions which specify that the legal representative could be punished with imprisonment of 3-7 years and penalties, for the company’s criminal offense, such as: crime of making a false capital contribution and surreptitious withdrawing the contributed capital; crime of major labor security accent, and crime of bribery.
In addition, according to Company Law of PRC, any legal representative of a company that has its business license revoked and is ordered to close down due to violations of the law, will be blacklisted. He or she will be forbidden to hold any position such as: director, supervisor, or senior manager of a company for three years.
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