What are the liabilities that are specifically applicable to legal representative of a foreign-invested enterprise in China?

The liabilities specifically applicable to legal representatives are found generally in:

• General Principles of the Civil Law of the People’s Republic of China;
• 2007 Enterprise Bankruptcy law; and
• Regulations of the PRC Concerning the Administration of the Registration of Enterprises with the Status of Legal Persons 1988.

Under General Principles of the Civil Law of the People’s Republic of China, the legal representative is the natural representation of the legal person in litigation, thus such person would be subject to any fines, detention, administrative sanctions or criminal liability, if the company is engaged in illegal business activities, committing fraud, concealing facts from Administration of Industry and Commerce or tax authorities or any other situations that have been stipulated in the Principles. Furthermore, the legal representative does not have to have actual knowledge or actual engagement in these illegal activities, thus the legal representative may not be at fault personally for such illegal behavior.

Under the 2007 Enterprise Bankruptcy law, where someone in the company so acts to undermine the interests of creditor, liabilities will be imposed on the legal representative of such company and the person directly responsible for such acts that will undermine the interests of creditors, which the Bankruptcy law deems illegal, including but not limited to, transferring property without consideration, trading at an obviously unreasonable prices and other acts.

Under the Regulations of the PRC Concerning the Administration of the Registration of Enterprises with the Status of Legal Persons 1988, the Administration of Industry and Commerce may punish the enterprise by means of warning, a fine, suspension or revocation of business license, if the company has concealed facts or practiced fraud during registration period, commenced business operations before the approval and registration, or any other acts that are stipulated under these Regulations.

If the company would have its business license revoked due to the violation of any of the above laws, the legal representative is not allowed to serve as a legal representative within three years of the revocation date of the business license.