Administrative liability A legal representative can be fined and fined if his company violates the laws of the PRC, in addition to the sanctions imposed on the company. If the situation is serious, the legal representative may be prosecuted. Criminal liability The legal representative and the company can be prosecuted. To be prosecuted and responsible for the crimes of the company, the legal representative must personally participate in the crime committed, be “directly responsible” or “directly responsible”. The legal representative and the company are essentially the same thing. The Company is bound by the actions of the legal representative and is therefore the sole body responsible for the correct or negligent conduct of the representative. In addition, actions that exceed the powers of the representative may also impose sanctions on the company. In order to avoid a fine, a third party who contacts the legal representative has the right to claim that he has acted inappropriately. Since the third party may not know the articles of association of the company and may not have access to its documents, he does not know when and how the powers of the legal representative were exceeded. At the same time, in case of violation of the rules, the legal representative is responsible. In order to control the legal representative and ensure that he does not exceed his legal powers, Chinese law imposes certain responsibilities. These responsibilities can be divided into 3 categories: civil liability, administrative liability and criminal liability. The legal representative is the person who has the legal authority to represent the Company and to enter into binding obligations on behalf of the Company in accordance with the law and/or the Company`s articles of association.

This may be the Chairman of the Management Board, the Executive Director (if there is no Board of Directors) or the Chief Executive Officer. There are no restrictions on nationality or residence. But, for example, people who are prosecuted for a crime convicted of corruption or corruption in the last 5 years, or former directors/officers of a company liquidated or declared bankrupt less than 3 years ago are excluded. In general, the by-laws of a company and related business documents submitted to the Local Administration of Industry and Commerce set the limits of the authority of its legal representative. In practice, however, counterparties can often argue that they cannot consult these documents to determine the authority of the legal representative. To avoid difficulties, it is important that companies explicitly limit the authority of a legal representative in the articles of association in order to minimize the risk to which the legal representative may expose the company. The same rules apply here as above for legal representatives. When selecting a legal representative for the first time, foreign investors typically choose either an existing employee (often with no Experience in China) or a new Chinese recruit (often without knowledge of the culture, policies, decision-making process, and compliance regulations of the home country). Foreign investors should carefully choose their legal representative, and the legal representative should be informed of the responsibilities and responsibilities that come with the position.

`The legal representative of a legal person is the person with [management] responsibility (fuzeren) who, in accordance with the law or the provisions of its statutes, exercises the power of attorney on behalf of a legal person` The responsibilities of the legal representative include, in particular, the legal preservation of the company`s assets, the execution of powers of attorney on behalf of the company, Authorization of legal representation and litigation by the company and conclusion of contracts and assumption of legal obligations on behalf of the company. Therefore, the choice of an appropriate and qualified legal representative, who has such extensive powers and can be subject to unlimited liability, is extremely important to reduce the potential risk. Therefore, when using a wholly foreign-owned company (WFOE) or a joint venture (JV), foreign companies should carefully consider who is best placed to act as a legal representative. Article 44 provides that a taxpayer (a company) or its legal representative who has not paid the amount of taxes payable must leave China, pay the taxes due and default fees, or provide a guarantee to the tax administration before leaving the country. If the taxpayer does not pay the taxes payable and the late payment fees, and does not provide a guarantee, the tax authority may inform the exit authority to prevent the taxpayer from leaving the country. Supervisory authorities may be held liable under civil and criminal law, but not for administrative liability. In general, their civil and criminal responsibilities function in the same way as for legal representatives. The natural choice for foreign investors when appointing a legal representative is to select an existing employee, usually from the parent company, who knows the corporate culture, identifies with its values and can be trustworthy.

However, such an employee may be inexperienced and unfamiliar with the Chinese market, and face many cultural, linguistic and other obstacles. In addition, the legal representative must travel to China to take some important steps, such as opening a bank account, closing the business, and taking legal action. It is also important to note that in times of crisis, Chinese authorities transfer responsibility to the legal representative, and it is possible that a legal representative who comes from abroad to resolve the crisis will be detained in China until the end of the crisis, which can take months in some circumstances.