Directors’ Duties in China

>> Powers and Duties in China

You must act within the powers imposed by legislation and the company’s constitutional documents.

Generally, there are no detailed regulations regarding delegation of duties in China, however delegation should be judged on a case by case basis. For instance, if you are unable to attend a Board meeting, you may designate, in writing, a proxy to be present at the meeting, otherwise you will be deemed as absent.

Duties – Skill and Care

In exercising Directors’ powers, you are required to exhibit a degree of loyalty, care, diligence and skill that a reasonable Director would exercise in the same circumstances.

Duties – General

The following general duties are imposed upon Directors under Chinese company law:

  • the Directors shall comply with all laws, administrative regulations and the Articles
  • the Directors shall bear the obligations of fidelity and diligence towards the company
  • no Director may accept any bribe or other illegal gains by taking advantage of his authorities, or encroach on the properties of the company
  • the Board of Directors are responsible for the shareholders’ meeting and must complete the following obligations:
    • convening the meeting
    • taking action on any resolutions made at the meeting
    • configuring the basic management systems established within the Company The powers and functions of the Board of Directors shall be to examine, discuss and approve or disapprove the following:
  • decide on the establishment of the company’s management organization(s) and material changes therein
  • decide on the appointment and dismissal of senior management personnel (i.e. the General Manager, Deputy General Manager and Chief Financial Officer), and the level of the wages and benefits of all personnel of the company
  • decide on the formulation of important company rules, regulations and systems
  • decide on the establishment or dissolution of the subsidiary, branch or liaison office of the company in China and/or overseas
  • decide on the company’s borrowings, guarantees and other financing arrangements, as well as the disposal of any significant asset
  • decide on the plans of contribution and utilization of the company’s statutory funds
  • decide on the employment or dismissal of CPA firm as the auditor of the company
  • decide on other important matters which concern the rights and interests of the company

Below are some of the restrictions on duties and actions that a Director may take: misappropriating funds of the company

  • depositing the company’s funds into an account in his own name or in any other individual’s name
  • without the consent of the shareholders’ meeting, shareholders’ assembly or Board of Directors, loaning the company’s fund to others or providing any guarantee to any other person by using the company’s property
  • signing a contract or trading with this company in violation of the Articles or without the consent of the shareholders’ meeting or shareholders’ assembly;
  • without the consent of the shareholders’ meeting or the shareholders’ assembly, seeking business opportunities for himself or any other person by taking advantage of his authorities, or operating for himself or for any other person or business similar to that of the company that they work for
  • taking commissions on transactions between others and the company
  • disclosing the company’s secrets without permission
  • other acts that are inconsistent with the obligation of fidelity to the company

Duties – Health, Safety and the Environment

Although there is no specific legislation relating to the liability of Directors for the enforcement of Health and Safety and Environmental law you need to pay particular attention to the following;

  • you will be liable for failure to comply with the following Environmental regulations with a potential penalty of up to 10 to 15 days imprisonment;
  • failure to subject a construction project to an environmental impact assessment in accordance with the relevant legislation;
  • allowing pollution of the environment to occur without a pollution discharge permit;
  • trying to evade detection of pollution for example via concealed drains, seepage wells or pits, perfusion, tampering or forgery of monitoring data or the abnormal operating of facilities used for prevention and control of pollution;
  • failure to comply with the following Health and Safety requirements could leave you liable for fines of up to RMB 200,000, or, if the act is serious enough, imprisonment and suspension from the position for up to five years
    • failure to ensure that there is adequate capital investment to guarantee production safety
    • failure to appropriately alter or stop production where there is a fault or problem which may cause harm
    • entering into agreements with employees which attempt to exempt or mitigate the liability of the company in the event of harm

Failure to ensure the immediate care or rescue of an employee who has been the victim of a serious production incident can also result in demotion or being held in custody for 15 days where you have attempted to hide from the authorities.


Latest version updated 22nd March 2018

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