Appointing a legal representative for a WFOE company

All companies operating in China must identify a legal representative when registering for a business license. As the name suggests, a legal representative is empowered by the company to represent their interests in a legal capacity and holds one of the most powerful positions in any business. In businesses without a board of directors, the executive director is made the legal representative by default. If operating with a board of directors, a company can appoint a specific individual from among the chairman, executive director, or senior manager, without regard to nationality, to be the legal representative.

Legal representatives have the following responsibilities by default:

• Complying with Chinese law and reporting to regulatory authorities
• Entering into legal contracts on behalf of the company
• Certifying corporate debt and equity

Acting in this capacity, the legal representative will make use of the company chop to certify the company’s assent in legal matters. Proper use and management of the company chop by the legal representative is critical to avoiding legal risks for your company and is outlined in Acadia Advisory Group’s article “Company Chops in China.”

It should be noted that legal representatives are among the most legally exposed individuals in a corporate structure and are subject to the following civil liability in their professional capacity as legal representative:

• Civil liability for any damages caused to the company due to intentional or unintentional conduct
• Civil liability for serious misconduct or collusion in contract signing
• Civil liability to the company for any misconduct on the part of the legal representative

And to the following criminal liability:

• Illegal activities or activities that are beyond the registered business scope of the company
• Providing fraudulent information to investors
• Engaging in or aiding shareholders in tax evasion, evading debt repayments, or hiding assets
• Unauthorized use of company assets during corporate dissolutions or bankruptcy proceedings
• Not reporting changes in the company’s core information (i.e. Information contained in the business license or articles of association)
• Any other activities prohibited in Chinese law or that are deemed to run counter to national interests

Ensuring that procedures and rules are completely understood and strictly implemented by the entire company is critical for any legal representative in performing their job correctly.