Every business established in China, whether domestic or foreign, is required to have a legal representative. He/she is the main principal of the company and is the employee with the legal power to represent and enter into binding obligations on behalf of the company in accordance with the law or articles of association of the company. Essentially, the legal representative is someone who is appointed to act on the companys behalf and Article 38 of the General Principles of Civil Law of the Peoples Republic of China defines the role as the responsible person who performs the duties and powers on behalf of a legal person in accordance with the law or the constituent documents of the legal person.
However, foreign investors often have only a limited understanding of the legal representatives role and are startled when they learn of their power and how difficult it is to replace an un-cooperative one. Legal representatives possess broad powers and potentially unlimited liability. When concluding a contract a legal representatives acts are binding on the company even if he/she is acting beyond their authorized scope. Failure to properly understand the powers and responsibilities of a legal representative can therefore lead to a situation where foreign investors are held to ransom. In appointing a legal representative, it is vital to bear in mind that the legal representative will essentially have the full keys to the company, cash, and capital.
Amendments to the PRC Company Law require a new company established on or after January 1, 2006 to appoint a supervisor, or board of supervisors depending on the size of the company, whose role is to monitor the activities of the legal representative. Shareholders and employee representatives of a company can act as supervisors. However, members of the companys board of directors or senior management may not simultaneously serve as supervisors. If a company has a board of supervisors, it must have a proportion of employee representatives which accounts for at least one-third of supervisory membership. The supervisor, like the companys directors, is not required to reside in or visit China.
The main role of the supervisor is to safeguard and supervise the operation of a company and exercise supervision over the work of directors and senior management. The Company Law gives supervisors an array of powers, such as inspecting the companys finances, supervising the company directors and senior managers, recommending dismissal of directors or senior managers who violate laws or damage the companys interests, proposing shareholder meetings, and any other powers specified in the companys articles of association.
The role of supervisor is very relevant to the potential liabilities of the legal representative as they are permitted to supervise and constrain the legal representative in order to reduce the potential risks of a rogue legal representative acting on behalf of the company.
When the average layperson thinks about breaking the law, they by default are thinking about criminal law. However, there is also civil law to consider, which has its own set of characteristics. Here are some of the principle differences between civil and criminal law.
Criminal Law – In criminal law, the government will file the case. In order to prove their case, the burden of proof is always on the government. They must prove “beyond a reasonable doubt” that the defendant is guilty and win a unanimous decision from the jury.
Civil Law – Cases are filed by private parties in civil cases and deal with the disputes between people or organizations where compensation is awarded to the plaintiff. While Federal courts require an unanimous verdict, in most civil case the plaintiff only has to prove that the “preponderance” of the evidence favors them. This can also be referred to in simpler terms as “more likely than not.”
This varies from state to state though. In Missouri, the decision of the jury must be 9-3 for the plaintiff to win. But in Federal courts, the plaintiff must get a unanimous verdict.
A defendant in civil litigation will not be incarcerated and certainly never executed. Losing defendant in civil litigation only reimburses the plaintiff for losses caused by the defendant’s behavior. Either party (plaintiff or defendant) can be found at fault.
Criminal Law – The crimes are divided into two basic classes: felonies and misdemeanors. The defendant is found guilty when the jury decides unanimously in favor of the plaintiff. If they are found guilty, the punishment is a fine (paid to the government), imprisonment, or death, in states that allow for the death penalty. The decision is and dry: guilty or not guilty.
Civil Law – There is more flexibility with guilt in a civil case. Both the plaintiff and defendant can be found partially right or partially at fault. Either way, the party found guilty cannot be imprisoned and certainly not put to death. But if they are found guilty, they must pay what’s called punitive damages as determined by the judge.
The Appeals Process
Either party may appeal the decision in a civil case. However, in a criminal case, only the defendant can file an appeal. If the person(s) found guilty want to appeal, they have a limited time to file their appeal.