To be a Chinese corporate director, you need to know...
Time:2024-02-16 18:32:52Source:Click:次
To be a Chinese corporate director, you need to know...
By David Gao
The amended Company Law of the People's Republic of China has been adopted by the Seventh Session of the Standing Committee of the Fourteenth National People's Congress on December 29, 2023, and will come into effect on July 1, 2024.
The amended Companies Law has made a number of substantive changes to the former Company Law. This article provides a review of the rights and obligations of directors under the new Company Law.
1. Who can act as legal representatives of a Chinese company?
Chinese company law has provisions for legal representatives. According to the old Company Law, the legal representative can only be the chairman of the board, executive director or general manager. Article 10 of the new Company Law provides that a director or manager who executes the affairs of the company can act as the legal representative.
From the above provisions, we can see that any director who manages the affairs of the company, even if he or she is not the chairman of the board of directors, could be appointed as the legal representative of that company.
2. The directors have the obligation to call for contributions from shareholders
Article 51 of the new Company Law provides that if a shareholder fails to make it's capital contribution on time, the board of directors shall issue a written reminder to call for the contribution. Otherwise, if the company suffers losses, the responsible director shall be liable for compensation.
3.Provisions on resignation of directors
Article 70 of the new Company Law stipulates that the resignation of a director shall take effect from the date the company receives the written notice of resignation, but if there is a "caretaker director" situation, the director shall continue to perform his/her duties.
A caretaker director is a director who resigns during his or her term of office, resulting in the board of directors falling below a quorum (the board of directors of a limited liability company may not be less than three members), and the original director must continue to perform his or her duties until a new director is elected.
4. Premature dismissal without cause entitles a director to compensation
Article 71 of the new Companies Law provides that the shareholders' meeting may remove a director without cause, and the removal becomes effective as of the date of the resolution.
However, if a director is removed before the expiration of his term without a valid reason, he may claim compensation.
5. A person listed as a lost-credit-person subject to enforcement for breach of court judgement shall not be allowed to serve as a director
Article 178 of the new Company Law stipulates that a person who is listed by the people's court as a lost-credit-person subject to enforcement for failing to perform of court judgement due to the maturity of a large amount of debt is not allowed to serve as a director.
6. "Shadow directors" are subject to director's liability
Article 180 of the new Company Law provides that controlling shareholders and de facto controllers, who do not serve as directors but who actually manage the affairs of the company, are also subject to the duties of loyalty and diligence to the company.
7. Affiliated transactions requiring approval
Article 182 of the new Company Law provides that any contract or transaction entered into by a director directly or indirectly with the company shall be reported to the Board of Directors or the general meeting of shareholders and approved by a resolution of the Board of Directors or the general meeting of shareholders in accordance with its Articles of Association.
Directors are also required to comply with the reporting and approval procedures for contracts or transactions with the Company entered into by close relatives of directors, companies directly or indirectly controlled by directors or their close relatives, and other related parties.
8. Directors should not, in principle, take advantage of the company's business opportunities
Article 183 of the New Companies Law provides that a director may not use the advantages of his position to obtain for himself or others business opportunities belonging to the company. However, there are two exceptions:
First, he can do so with the consent of the authorized body of the company. If he has reported to the board of directors or shareholders' meeting and approved by a resolution of the board of directors or shareholders' meeting in accordance with the provisions of the company's articles of association, he can do so;
Second, he can do so if the company is unable to take advantage of the business opportunity. In case the company is unable to take advantage of the business opportunity in accordance with the provisions of laws, regulations or the Company's articles of association, he can do so.
9. Directors may not compete in the same business
Article 184 of the new Companies Law provides that a director may not engage in the same type of business as the company for which he is working, either on his own or for others, without reporting to the board of directors or the general meeting of shareholders and obtaining approval from the board of directors or the general meeting of shareholders in accordance with the provisions of the company's articles of association.
Therefore, if a director has a company that competes with the same business or will engage in the same type of business as the company in the future, before taking office, he or she shall report to the company and obtain a waiver from the shareholders' meeting in this regard when the shareholders' meeting elects the director.
10. Directors are statutory liquidation obligors when a company is liquidated
Article 232 of the new Company Law stipulates that the director is the liquidation obligor of the company and shall form a liquidation team to carry out the liquidation within fifteen days from the date of the occurrence of the cause of dissolution.
If the liquidation obligor fails to fulfill the liquidation obligation in time and causes loss to the company or creditors, he shall be liable for compensation.
～END～
Disclaimer: This article is only for academic purpose and not intended for providing any legal advice for any specific cases, individuals or organizations.
For more information, please feel free to contact David Gao, a Chinese lawyer with With 20+ years of legal practice, focusing on business law and family law.
Email: gaohexin@163.com
Tel/Wechat：86 13611158067
