Published: June 18, 2020
Category: Business/Corporate Matters
By: David Cui
Serving as a legal representative or director was never free of business risks. Moreover, the task is fraught with legal risk as well. In this article, we will highlight the personal legal responsibilities that placed upon legal representative and directors (including foreigners) because of their positions within the corporation (such as wholly foreign owned enterprise or Joint Venture) in China.
1. Civil liability
Willful misconduct
According to the Company Law of the People's Republic of China, directors or members of "senior management" (defined as general manager, deputy general manager, financial director or other individuals specified in the articles of association) who violate the laws of the People's Republic of China or the articles of association of the company must compensate for any losses caused to the company. Since the legal representative of a company must be the chairman of the board of directors (or the executive director of a smaller company that chooses not to set up a board of directors) or the general manager of the same company, the above provisions also apply to the misconduct of the legal representative.
Negligence
If an individual, including the legal representative and the director, negligently damages the rights and interests of others, he/she shall be liable for compensation. In addition, if the intentional or negligent illegal act of the legal representative causes damage to the third party, the company can recover from the legal representative after compensating the damaged third party.
Insolvency proceedings
If a company in bankruptcy proceedings, violated the provisions of the enterprise bankruptcy law, pays off its debts in advance or transfers its property by fraudulent means, the legal representative and other persons (including directors) directly responsible for shall be liable for the damages.
Unpaid subscription capital
Where the legal representative or director of a company is also a shareholder of the company and fails to make the capital contribution as promised, he/she shall bear the following responsibilities:
The company and its creditors may require the shareholders who fail to pay their capital contributions to fulfill their commitment to make capital contributions;
If the company is dissolved, it shall not go through the dissolution procedures before paying off all the capital contribution.
On the other hand, if the shareholder is a company that has not paid the subscribed capital in full, in rare cases, it may be pierced the "corporate veil" and require the individuals behind the shareholder company to bear personal responsibility for the unpaid subscribed capital. If the interests of the creditors of the company are seriously damaged, they can claim that the bankruptcy of the company is an abuse of the independent legal status of the company to avoid debt.
2. Administrative responsibility
Unpaid subscription capital
The Chinese company registration authority may impose a fine of not less than 5% but not more than 15% of the amount of capital contribution not paid.
Vicarious responsibilities
As mentioned above, in addition to being liable for his own misconduct or negligence, the legal representative may also be liable for the illegal acts committed by directors or employees on behalf of the company. In particular, the legal representative of the company may be subject to a fine or administrative penalty if the company:
Engaging in illegal business activities beyond the business scope approved and registered by relevant government departments;
Concealing facts from relevant government departments or practicing fraud;
Transferring funds or hiding assets for the purpose of evading debts;
Disposing of the company's property without approval after the company is dissolved, revoked or declared bankrupt;
Where the company fails to apply for registration and make necessary announcement in time in case of information change or business termination, resulting in heavy losses to the interested parties,
To deal with these problems, China's Supreme People's court held that the legal representative could be fined 2000 yuan or less than 300 US dollars and detained for less than 15 days.
Chinese law does not require the legal representative to actually understand or personally participate in any of the above illegal acts. Therefore, in theory, the legal representative is subject to strict liability standards for his company's act or omission under any of the above circumstances.
False or inaccurate disclosure
If the financial and accounting reports provided by the company to relevant departments contain false records or conceal important facts, the person in charge and other persons directly responsible (including the legal representative and directors of the company) shall be fined not less than 30,000 yuan but not more than 300,000 yuan (US $4700 to US $47000).
Wrongdoings during liquidation
Similarly, in the process of liquidation of the company, if its legal representative and / or other directly responsible persons (including directors) conceal the company's assets or make false records on the company's balance sheet / asset list, or distribute the company's assets before the company pays off its debts, a fine of more than 10,000 yuan but less than 100,000 yuan (more than 1,560 US dollars and less than 15,600 US dollars) shall be imposed.
However, in practice, most of the administrative enforcement actions are based on the company's intentional misconduct. In the case of punishment, the punishment is mainly targeted companies, not their legal representatives or directors.
Border control
In most cases, the legal representative or director of the company is not allowed to leave China because (I) the ongoing litigation involves the legal representative, director or his company; (II) the company where the legal representative or director works is in arrears of wages or has entered the bankruptcy process; or (III) the judgment of the court against the foreigner or his Chinese company has not been enforced.
3. Criminal responsibility
If the company is investigated for criminal responsibility, the senior staff of the company who are "mainly responsible" and / or "directly responsible" at the time of criminal activities will be punished. China's criminal law does not define these two terms, so more clarification may be needed to determine whether the legal representative or director will be prosecuted for personal criminal responsibility for the company's criminal acts.
4. Avoiding danger
In view of the personal legal risks attached to the positions of legal representative, director or other senior management in Chinese companies, we put forward the following suggestions, hoping to help the senior managers of enterprises effectively avoid personal legal risks:
Provide adequate capital for the business’s intended purposes and document all capital contributions by proper company resolution.
At a minimum, prepare annual minutes for meetings of shareholders and directors and minutes for any special meeting called by the shareholders or directors. I also strongly urge you to adopt resolutions reflecting approval of all major corporate actions. LLC’s should also take steps to document some of the more significant actions highlighted above and should also make a habit of preparing company minutes;
Provide written notices of the annual or special meetings of the shareholders and directors
Members of an LLC should always draft resolutions documenting, among other significant actions, all capital contributions, real property and other asset and equipment purchases/sales, admittance of new members, appointment of managers or key employees, entering into significant joint ventures and strategic partnerships, entering into all significant loans and other indebtedness, amendments to the Operating Agreement, and all other actions requiring unanimous consent of the Members under the Operating Agreement (i.e. major actions);
Do not elect other directors and officers who serve no operational purpose. You need to involve directors and officers and any managers of an LLC directly with the management of the business and affairs of the corporation or LLC;
Always maintain a separate identity from the owner(s). For instance, use separate letterhead, use the full, legal name of the business. Do not use the same or similar name or logo for related companies;
Keep a separate bank account for the business funds and never commingle business and personal funds;
Maintain arm’s length transactions. An ‘arm’s length’ transaction is a transaction between two otherwise unrelated or un-affiliated parties, or is a transaction between two related or affiliated parties that is conducted as if they were unrelated, in a manner where no reasonable conflict of interest can exist;
Do not divert assets, meaning corporate assets should always remain corporate assets and not transferred to any owner (or relative or affiliate of any owner). If the business looks like it is going down, don’t attempt to lessen your own loss by taking big draws or moving assets out of the LLC. That will only help open the floodgates to your personal assets;
Avoid signing personal guarantees. Not all personal guarantees can be avoided but do not simply consent to every guarantee automatically. In many cases, vendors routinely request personal guarantees even where they shouldn’t. You should not grant this request;
Do not favor one creditor over another or make a distribution to one creditor over other creditors holding outstanding company debt during a period of insolvency or dissolution.
中国公司法定代表人和董事的法律风险
担任法定代表人或董事从来都不是没有商业风险的。此外，这些职位也意味着法律风险。在本篇文章中，我们将重点介绍个人（包括外国人）作为在中国注册公司（如外商独资企业和中外合资企业）的法定代表人或董事可能承担的法律责任。
1. 民事责任
故意不法行为根据中国《公司法》的规定，违反中国法律或违反公司章程的董事或“高级管理人员”（定义为总经理、副总经理、财务负责人或公司章程中规定的其他个人）的成员，必须赔偿由此给公司造成的任何损失。鉴于公司的法定代表人必须是董事会主席（或选择不设立董事会的较小公司的执行董事）或同一公司的总经理，上述规定也适用于法定代表人的不当行为。
疏忽
包括法定代表人、董事在内的个人，其过失损害他人权益的，承担民事责任的风险。
此外，如果法定代表人的故意或过失不法行为给第三人造成损害，公司可以在赔偿受损害的第三人后向法定代表人追偿。
破产程序
正在进行破产程序的公司违反《企业破产法》规定，提前清偿尚未到期债务或者以欺诈手段转移公司财产的，公司的法定代表人和其他直接责任人员（包括董事）应当对由此造成的损害承担赔偿责任。
未缴认缴股本
公司法定代表人或者董事兼任公司股东，未按承诺缴纳认缴出资的，应当承担下列责任：
公司和公司债权人可以要求欠缴出资的股东履行出资承诺；
公司其他股东违反合同约定，即违反公司章程，不缴纳认缴出资额的，向未缴纳出资额的股东追究民事责任
公司解散的，在未清偿全部股本债务前，不得办理解散手续。
另一方面，如果股东是一家未足额缴纳认缴出资的公司，在极少数情况下，有可能被刺破“公司面纱”，要求股东公司背后的个人对未缴认缴出资承担个人责任。如果公司债权人的利益受到严重损害，可以提出这样主张，即公司破产是滥用公司的独立法律地位，以逃避债务。
2. 行政责任
未缴认缴股本
中国公司登记机关可以对股东处以未缴认缴出资额百分之五以上百分之十五以下的罚款。
替代责任
如上文所述，法定代表人除对自己的不当行为或疏忽承担责任外，还可能对董事或雇员代表公司所犯的违法行为承担替代责任。特别是，如果公司出现以下情况，公司的法定代表人可能会受到罚款或行政处罚：
超越政府有关部门核准登记的经营范围从事非法经营活动的；
向政府有关部门隐瞒事实或者弄虚作假的；
以逃避债务为目的，转移资金或者隐匿资产的；
公司解散、被撤销或者宣告破产后，未经批准处分公司财产的；
公司信息变更或者终止业务，未及时申请登记并作出必要的公告致使利害关系人遭受重大损失的，从事法律禁止的其他活动，损害国家和社会公众利益的。
对此，中国最高人民法院认为，可以对法定代表人处以2000元人民币或300美元以下的罚款，并处15天以下的拘留。
中国法律不要求法定代表人实际了解或亲自参与上述任何违法行为。因此，理论上可以对法定代表人就其公司在上述任何情况下的作为或不作为规定严格的责任标准。
虚假或不准确的披露
公司向有关部门提供的财务会计报告有虚假记载或者隐瞒重要事实等情形的，对其直接负责的主管人员和其他直接责任人员（包括公司法定代表人、董事）处3万元以上30万元以下的罚款（4700美元至47000美元）。
清算期间的不当行为
同样，在公司清算过程中，其法定代表人和/或其他直接责任人员（包括董事）隐瞒公司资产或者在公司资产负债表/资产清单上作虚假记载，或者在公司清偿债务前分配公司资产的，处以1万元以上10万元以下（1560美元以上15600美元以下）的罚款。
然而，在实践中，大多数行政执法行动都是基于公司的故意不当行为，在实施处罚的情况下，处罚的对象主要是相关公司，而不是其法定代表人或董事本人。
出入境限制
在大多数情况下，不允许公司的法定代表人或董事离开中国，是因为（i）正在进行的诉讼涉及法定代表人、董事或其公司；（二）法定代表人、董事工作的公司拖欠职工工资或者已进入破产程序；或者（三）未执行法院对该外国人或者其中国公司的判决。
3. 刑事责任
如果公司被追究刑事责任，将对犯罪活动发生时“主要负责”和/或“直接负责”的公司高级职员处以处罚。中国的刑法没有对这两个引用的术语进行定义，可能需要更多的澄清，以确定法定代表人或董事是否会因公司的犯罪行为而被追究个人刑事责任。
4. 规避风险
鉴于中国公司的法定代表人、董事或其他高级管理职位可能给具体担任这些职务的个人产生的法律风险，我们提出以下建议，希望能够帮助企业的高级管理人员，有效避免个人法律风险：
为公司业务的预期目的提供充足的资本，并通过适当的公司决议记录所有出资;
至少，为股东和董事会议准备年度会议记录，以及为股东或董事召集的任何特别会议准备会议记录。我还强烈您通过决议，反映对所有重大公司行动的批准。有限责任公司还应采取措施记录上述一些更重要的行动，并应养成准备公司会议记录的习惯；
严格按照公司章程规定的要求和程序，提供股东和董事年度会议或特别会议的书面通知，并将这些通知保存在公司账簿中；
有限责任公司的成员应始终起草决议，记录所有出资、不动产和其他资产和设备的购买/销售、新成员的准入、经理或关键员工的任命、签订重大合资企业和战略伙伴关系等重大行动，签订所有重大贷款和其他债务，修订经营协议，以及根据经营协议要求成员一致同意的所有其他行动（即重大行动）；
始终保持独立于所有者的身份。例如，使用单独的信笺抬头，使用企业的完整法定名称。不得使用与关联公司相同或类似的名称或标识；
公司资金在银行单独开立账户，不得将公司资金和个人资金混用；
保持公平交易。“公平交易”是指两个不相关或非关联方之间的交易，或者是两个相关或关联方之间的交易，以不存在合理利益冲突的方式进行，如同他们是不相关的；
不得转移资产，这意味着公司资产应始终是公司资产，不得转让给任何所有者（或任何所有者的亲属或附属公司）。如果公司要倒闭，不要试图通过从有限责任公司中提取大笔资金或转移资产来减少自己的损失，那样只会使你的个人资产陷入危机；
不要签个人担保书。并非所有的个人担保都可以避免，但不要简单地自动同意每一项担保。在许多情况下，供应商通常要求个人担保，即使他们不应该这样做。你不应该同意这一要求；
在资不抵债或解散期间，不得偏袒任何债权人或分配资产给一名债权人而不给其他债权人。
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