Once you have decided to set up an entity in China you come across a list of mandatory roles for the company registration. Below are the answers to the most frequent questions in our mailbox related to the China Limited Liability Company (LLC) management structure.
How liable is the Legal Representative? Does he need to reside in China?
The legal representative is the face of the company who is authorized to act on behalf of the company in legal matters and is accountable for the company’s compliance with Chinese laws and regulations. Thus, the Legal Representative is responsible for:
- Signing contracts and documents.
- Representing the LLC in legal matters.
- Ensuring compliance with local laws and regulations.
Legal Representative can be held accountable for any action conducted by the China entity: when it comes to the administrative sanctions, fines, criminal charges against the company, legal representative may bear the responsibility together with and for the legal person.
Read more on Legal Representative in China: Duties and Liabilities
Who can be a Supervisor and what exactly does he do?
You can appoint one Supervisor or a Supervisory Board. The Supervisor is responsible for overseeing the actions of the directors and the management, ensuring compliance and transparency, therefore must be independent and not part of the executive management.
The supervisor is responsible for:
- Reviewing financial records and business transactions.
- Ensuring the company adheres to legal and regulatory requirements.
- Reporting any issues to the shareholders or relevant authorities.
The amended Company Law (effective July 1, 2024) increases Supervisor liability. Emphasizing Supervisor’s role in company’s compliance, should any issues arise, the Supervisor might be held accountable.
For example, if a Chinese court imposes high-level consumption restrictions on the company, the restrictions could extend to all the personnel directly responsible, e.g., Legal Representative, Supervisor, etc.
Read more on Amended China Company Law
What are the responsibilities of the Financial Responsible Person?
财务负责人 is translated as “Financial Responsible Person” or a “Financial Person in Charge.” This individual is the main point of contact for the tax office and is responsible for reviewing and approving company financial reports, and ensuring compliance with the local laws. Usually, the role is assumed by an accounting firm in charge of the bookkeeping and tax filing.
Can one person assume more than one role?
Yes. Nevertheless, you should always keep in mind that the more roles the individual assumes the more power he has.
How many directors do we have to appoint?
You can appoint one director – an Executive Director. Otherwise, you can appoint a Board of Directors. If there are two and more directors, a Chair of the Board must be appointed. It is not required for any of the directors to reside in China or to receive salary.
Must we hire a local employee?
No, but it is highly recommended if you do not outsource filing to an accounting firm to have at least one local employee.
Even if you have a small company in China, no transactions and declare “0” tax, the tax office will eventually get suspicious and will try to contact your Financial Responsible Person. Therefore, there must be at least one person who speaks Chinese, is on the ground and registered as a point of contact for the tax authorities. In most cases it makes sense to outsource the finance function for the China entity, this way the role of the Financial Person in Charge is assumed by an accounting firm.
Below are the answers to the two most frequent questions about China Representative Office.
Can a Representative Office hire local employees?
Representative office can only hire Chinese employees indirectly through a local dispatch company.
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Can a Representative Office hire foreign employees?
Yes. In addition to the Chief Representative, a representative office can hire up to four foreign employees as representatives. Representatives are treated as ordinary employees under the PRC employment law.
On the contrary, the Chief Representative must be an employee of the parent company and is not required to be an employee of the representative office or to reside in China.
This article will be regularly updated with more questions and answers. If your questions about China Limited Liability Company management structure have not been answered, please do not hesitate to reach out to our experts at contact@sjgrand.cn.
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