Directors’ Duties in China

>> Liabilities and Penalties in China

Exercise your responsibilities carefully as the penalties for failure to do so can be severe.

A Director who breaches his statutory duties may be subject to the following liabilities in China;

  • Civil Liability – If you breach your duties to the company, any income obtained from the illegal acts shall belong to the company. In addition, if you violate a law, regulation or the company’s Articles in the execution of your duties, thereby causing losses to the company, you will be liable for compensation
  • Administrative liability – You may face administrative liabilities when the company violates the laws and regulations and you are personally liable for the violation. Administrative penalties include warnings, fines, confiscation of illegal income or property, and administrative detention
  • Criminal liability – You may be held criminally liable if your actions constitute a criminal offence or you are the person who is directly in charge and/or responsible for the crimes committed by the company

Either the breach of duty itself, or the imposition of one of the sanctions described above, may lead to disciplinary action being taken against you and/ or limitations upon you being able to continue in your role.

Please note if a Chairman of the Board is appointed as the company’s legal representative (only the Chairman of the Board or the General Manager can act as the company’s legal representative), his standard of care and legal liabilities are generally higher than other Directors.

For a company limited by shares, a Director is responsible for the resolutions made by the Board of Directors. In case a Board resolution is in violation of any prescribed legalities the Directors will be directly liable. However, if the Director is proven to have expressed his objection to the voting on such resolution and his objection was recorded in the records, then the Director may be exempt from liabilities.

For a limited liability company there are no provisions in the local law to limit or restrict the liability of Directors.

Delegation of Authorities

There are no detailed regulations surrounding the delegation of authority and in practice, whether the delegation is allowed should be judged on a case by case basis.

Generally delegation is allowed, for example, should a Director be unable to attend the Board meeting, he may designate a proxy to represent him to attend the meeting. Otherwise, the Director will be deemed as absent.  However, the company must take into account the views of the shareholder.

According to the General Principals of Civil Law, the principal (the Director) shall bear civil liability for the agent (delegate) when the agent performs civil juristic acts in the principal’s name within the scope of the power of the proxy. Therefore, the Directors are still liable for the actions of the delegate.

Directors and Officers Insurance

In China, Director’s liability insurance is available, however it is not compulsory and is mainly used for listed companies.

Latest version updated 22nd March 2018

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