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
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”

Mondaq Advice Centre (MACs)
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
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). 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 & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd 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 or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.