China question: How can I get a new legal representative?
Abstract (summary)
The domestic perspective
In accordance with the Implementing Opinions on Several Issues Concerning the Application of the Law in the Administration of the Examination, Approval and Registration of Foreign-invested Companies ([Chinese text ]) (Gong Shang Wai Qi Zi [2006] No 81), a foreign-invested enterprise applying for change of its legal representative may go through the formalities for change of registration with the relevant administration for industry and commerce, and no approval from the original examination and approval authority is required.
Application documents
A wholly foreign-owned enterprise (WFOE) applying to change its legal representative would be generally required to submit the following documents:
a) application for change of registration of foreign-invested (partnership) enterprise;
b) resolutions or decisions made by the highest authority under the articles of association of the applicant (if the articles of association expressly stipulates that the legal representative shall be elected, such resolutions or decisions will not be needed);
c) resignation or removal document of the original legal representative and the appointment document of the new legal representative; and
d) business licences of the applicant (including both the original and the duplicate).
If the WFOE is registered in Beijing, in addition to the above documents, the Beijing Administration for Industry and Commerce (BAIC) also requires the applicant to provide a power of attorney. According to the Opinions on Simplifying the Process of Industrial and Commercial Registration and Optimising Access Services (Jing Gong Shang Fa [2013] No 85) (Opinions on Simplifying the Process of Industrial and Commercial Registration), issued by the Beijing Administration for Industry and Commerce on October 14 2013, applications for change of registration may be signed by either the former legal representative or the new legal representative and chopping of the company seal is no longer required.
If the WFOE is registered in Shanghai, in addition to the above documents, the Shanghai Administration for Industry and Commerce (SAIC) also requires the applicant to provide a registration sheet of the new legal representative, legal representative review comments, approval documents of the examination and approval authority (in the case of finance, securities and insurance companies).
Time limits
According to the Opinions on Simplifying the Process of Industrial and Commercial Registration, the time for issuing licences can be shortened to within five working days following its receipt of complete required application documents by the relevant local branches of the BAIC according to circumstances.
Under the relevant rules of the Shanghai Administration for Industry and Commerce, the relevant local SAIC branch is required to make a decision on whether or not to approve the registration within five days following its receipt of complete required application documents.
Other matters
Under the relevant rules of the BAIC, any person who has been recorded in the Beijing corporate credit information network restriction blacklist cannot hold the position of the enterprise's legal representative during the restriction period.
Under the relevant rules of the SAIC, selection of the legal representative shall comply with the relevant provisions of the articles of the associations of the enterprise, such as provisions on election, appointment and assignation or engagement of the legal representative.
Within 30 days following the completion of registration of change of legal representative, the WFOE shall complete the change of its other licences and certificates, such as the tax registration certificate, foreign exchange registration certificate, fiscal registration certificate, foreign trade operators registration form, social security registration certificate, statistics registration certificate, bank account opening certificate and other relevant licences and certificates.
David Fu
Global Law Office, Beijing
The international perspective
Legal representative is a role not commonly known among foreign investors who are new to China. Under Chinese law, the legal representative can be either the chairman or general manager of a Chinese company, including a wholly foreign-owned enterprise (WFOE). More importantly, as a matter of law, a legal representative can sign documents and bind his company even if he is not authorised to do such things under the articles of association of the company. He may do so unless the counterparty knows or should know that the legal representative is acting outside his authority. If you wish to change your legal representative on file with the local company registrar, the Administration of Industry and Commerce (AIC), you will be required to submit an application, and, strangely, sometimes the local AIC will require a signature from the outgoing legal representative on such an application.
So what happens if the existing legal rep is fired and he refuses to sign on the application for his own replacement? Arguably, as a matter of law, the appointment of directors and legal rep will take effect upon shareholder decision, rather than completion of filing with the AIC. However, in practice, this does not work well, because Chinese government authorities tend to take filed records more seriously. You can try to persuade the local AIC to give up their requirement of signature from the outgoing legal rep, which is more local practice than legal requirement. However, AIC officials may want to shield themselves from potential liabilities - what if someone made up a false application to change the legal rep?
If you are unable to convince the AIC, then you will have to submit a shareholder decision for change of the WFOE's legal representative. Another issue may come up - who should sign on the shareholder resolution? In the Western context, it will normally be a director or "authorised representative" of the shareholder entity. However, in many cases, such an authorised representative of the shareholder would be on record with the local AIC when the WFOE was initially incorporated. If the AIC finds out the shareholder resolution was not signed by the same person, it will again refuse to accept it for the purpose of changing the legal representative. In this case, you may be asked to produce, notarise and legalise the shareholder entity's certificate of incorporation, list of directors/officers, as well as the board resolution of the shareholder entity. All documents require Chinese translation. This process may take weeks or even months, but the results are generally acceptable to Chinese government authorities as evidence for shareholder action.
Make the right appointment
In connection with the change of legal rep, local authorities may also request the application to be affixed with the company chop of the WFOE. Similar to the role of a legal representative, a company chop also carries apparent authority in China, as a matter of practice. Chinese courts may support a contract executed with the company chop only, even if there is no signature from a WFOE representative. If you do not control the company chop, depending on local practice, you may again try to remedy the situation through notarisation and legalisation.
Given the significance of the legal representative role, and the difficulty in changing it, businesses should appoint a person that is easier to control. For instance, you may consider appointing a foreign national or expatriate as the chairman and legal representative of your WFOE. There is no residency requirement for directors or legal rep of a Chinese company. One possible downside, however, is that it may take longer to have a foreign guy sitting outside China to execute documents which have to bear the signature of the legal rep.
We have come across a few cases where a global company has had disputes with its local management in China in the M&A context or for other reasons, and was denied access to its WFOE premises in China. In these cases, whether the global company has the legal representative on its side (or the company chop) can make a difference. Frequently, the company chop will need to be in China to maintain day-to-day operations. Thus, it is advisable to appoint a legal representative that you can trust and control.
Liang Xu
Hogan Lovells, Beijing
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( (c) Euromoney Institutional Investor PLC Jan 2014)
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