China: Risks and Liabilities for Legal Representatives in China

The legal representative is the person with the broadest individual authority in a company in China. Unlike in other countries, PRC law requires that only one person - either the chairman of the board of directors, the executive director or the general manager - is appointed by the investor(s) to represent the company on its behalf. In other words, this one person has access to and control over the company's assets and capital, and in most cases the company's stamps. For foreign companies it is therefore important to understand not only the powers that are transferred to this one position, but also the liabilities that come with it. On the one hand, the legal representative executes great authority in the company's daily operations, as he is considered to act on behalf of the company and has the right to make decisions regarding the company's assets, to confirm transfers, and authorize legal representation of the company. The legal representative's authorities are only limited by law and - internally - corporate governance rules such as the Articles of Association (AoA). On the other hand, the legal representative faces certain responsibilities that may lead to personal risks for wrongdoings either by himself or by the company and its employees, subject to civil, administrative or even criminal liability.

Risks for the Company: Exceeding Duties and Posing Harm to the Company's Interests

In general, actions of the legal representative that fall in his professional assignment are considered actions of the company herself, and therefore the company will be held responsible. Even in cases where the legal representative exceeds his authority while concluding contracts and his actions do not comply with the actual intent of the company, the contract will be binding and the company will be held liable if the business partner reasonably believes that the legal representative acted on the company's behalf. Therefore, a legal representative that has not been carefully chosen can seriously damage the business. If the company can prove to the court that it has clearly defined and recorded the limits of the legal representative's authority, it may ask a court to release it from the liability for the action.

However, civil liabilities to the company may arise when the legal representative clearly violates the laws or AoA, or if his actions constitute malpractice, gross negligence or intentional harm to the company's interests. If the company suffers any losses from the legal representative's actions, she can claim compensation.

Access to Company Chops and Termination of Employment

In China, business contracts are usually "signed" with the company stamp that is registered with the Public Security Bureau. In practice, the company stamp is much more powerful than a written signature. In fact contracts are legally binding even without the signature of the company's authorized representative, as long as they are properly stamped. This can be convenient as the person in charge does not have to be physically present to conclude a binding contract. Moreover, rules on stamp use, and procedures to restrict access and monitor use - with or without the assistance of a law firm - are key parts to managing and supervising the activities of senior managers.

Firing an uncooperative legal representative can be painful if the proper precautionary measures have not been taken in advance. For a valid termination of employment, the legal representative must sign and approve his own termination documents, and a person who is confronted with accusations of exceeding his competences and harming the business may have anything in mind but cooperating with the employer who tries to get rid of him. It is not uncommon that the company finds itself in the unfavorable situation where a legal representative keeps the company stamps "hostage" and demands a financial settlement. A good strategy to facilitate termination is to ask the person to be appointed as legal representative, to sign and stamp an undated termination agreement.

Risks for the Legal Representative: Senior Management Misconduct and Criminal Practice

A potential risk for the legal representative is posed by activities of other executive directors or senior managers that harm the interest of the company. Since the legal representative's actions are considered as those of the company, he can only avoid joint liability for the misconduct of others if he can show credibly that he was not aware of the harmful acts, did not participate in them, or explicitly disagreed at the board meetings.

Criminal activities of the company generally result in liability of the company itself. However, if the legal entity is charged with a crime, the persons directly in charge or the persons responsible for the crime may also bear criminal liability. Illegal business operations that could lease to risks of criminal liability for the legal representative include, most notoriously, tax evasion, customs duties evasion, bribery, environmental crimes and manufacturing of counterfeit or substandard quality goods. As the legal representative is in charge for the company's business activities, the illegal activities may be considered within the scope of his duties and therefore he could be held directly responsible. When the melamine milk scandal was exposed in 2008, the legal representatives of various dairy companies were held responsible for manufacturing and selling substandard goods and had to face criminal prosecution.

Bankruptcy Proceedings: Travel Restrictions for Legal Representatives

In case the company files for bankruptcy, the legal representative will have to take on a heavy burden that even influences his private life. To make sure that the bankruptcy procedure runs smoothly, PRC law determines that the legal representative is responsible for preserving the company's assets, stamps, accounting books and any documents under his control, and he is obligated to cooperate with courts and the bankruptcy administrator. Unless a replacement is found to take over the responsibility for unpaid taxes and liabilities, the legal representative may be prevented from leaving his domicile without permission of the court, and may not take up senior posts in another company. While the appointed legal representative is not required to reside in China, for those who are located in China this may result in a lengthy restriction on exiting the country. A way to mitigate this restriction is to seek permission of the courts to appoint an agent (usually a law firm) to represent the (foreign) legal representative in the process.

Some companies consider to illegally withdraw their investments from China, even though this means that it will be extremely difficult to conclude any future business in the country. In this scenario, the legal representative may be jointly held responsible for failure to complete liquidation procedures, which can even lead to criminal charges.


The legal representative occupies a powerful and important position in the company. Due to the broad scope of authority and access to the company's most valuable properties, it is important to carefully choose the right person for the position, and even more, to make use of best practices to prevent abuse of power. This includes clear limitations of the legal representative's powers in the AoA and other internal rules, as well as stipulations on stamp use, and termination strategies.

Minimizing personal risk is much more difficult, Liability insurance is generally available only for directors of listed companies, and in any case does not protect against criminal liability. Best practice is for the legal representative to know what is going on, be able to show that he has done all he could to prevent unlawful practices, and If the threat of (criminal) liability does present itself, respond quickly to minimize further risks to his person.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Maarten Roos
Similar Articles
Relevancy Powered by MondaqAI
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions