Corporate Governance for Foreign Investors in China
Powers: The Chairman, as the legal representative of the enterprise, has the power to legally bind the enterprise and bears significant responsibility for its acts and omissions. Most of the powers and functions of the board are set forth in the Articles of Association and in the Joint Venture Contract.
Number of Directors: The board of directors of both Wholly Foreign Owned Enterprises (WFOEs) and Joint Ventures are required to appoint between 3 and 13 directors. FIEs with few shareholders may be able to convince the examination and approval authority to dispense with the board of directors and use an executive director.
Membership: In an Equity Joint Venture (EJV), board membership must be proportionate to capital contributions. The board must have a Chairman, but need not have a Vice Chairman. If both are used, however, then if the foreign investor selects the Chairman, the Chinese party must select the Vice Chairman, and vice versa.
Meetings: Joint venture board meetings must be held once a year, and a quorum is 2/3 of the directors. For Equity Joint Ventures, unanimous consent of the board is required for amendment of the Articles of Association, increase or reduction of the Registered Capital, merger or division, and termination and dissolution. The law is significantly more flexible for Wholly Foreign Owned Enterprises - board meetings and quorum requirements are governed by the WFOE's Articles of Association.
Director & Officer Liability: Director and officer liability law and enforcement is not as well-developed as in many Western nations. Correspondingly, the market for directors and officers liability insurance is not particularly well-developed either. The Chairman's role as the enterprise's legal representative encumbers him with both civil and criminal liability for the acts and/or omissions of the enterprise. Directors can be held liable for board resolutions that are illegal or that contravene the Articles of Association and cause losses to the company. Directors, supervisors and senior management personnel can be held liable if they cause losses to the enterprise by violating laws and/or the Articles of Association.
Management
Equity Joint Ventures must appoint a General Manager, one or more Deputy General Managers, and a Finance Manager. Although not required for other FIEs, this is common practice for these enterprises as well. If a Chinese investor nominates the General Manager of an EJV, a foreign investor may nominate the Deputy General Manager, and vice versa.
General Manager: The General Manager is charged with day-to-day operation and may be a foreign national if the enterprise so chooses. The responsibilities of the General Manager should be listed in the Articles of Association even if Chinese law does not require the appointment of a General Manager (as in the case of WFOEs). The General Manager is charged by law with responsibility for formulating a management system for the enterprise; production, operations and management, employment and termination of staff (except those that must be employed and dismissed by the board of directors) and implementing board resolutions and investment and business plans.
Deputy General Managers: A Foreign Invested Enterprise may appoint one or more Deputy General Managers (EJVs are required to appoint at least one).
Finance Manager: An Equity Joint Venture is required to appoint one or more accountants to assist the General Manager with finances. This is also common practice for other FIEs.
Supervisors LLCs are required to have supervisory boards, although this is often ignored in practice by WFOEs and Joint Ventures.
Related Tags: china, chinese, law, fdi, foreign investment, corporate governance, board of directors
David Carnes is licensed to practice law in California. He speaks and reads Mandarin Chinese and has several years experience working with Chinese law firms and Sino-American joint ventures. Check out his website, http://www.lunaticwisdom.com/blog1/ China Legal Bulletin. Your Article Search Directory : Find in Articles
Recent articles in this category:
- Bookkeeping Outsourcing: the Unique, Competitive and Dynamic Advantage
Bookkeeping outsourcing is the intelligent bookkeeping business service which provides accounting s - Understanding Cultural Differences in Offshore Outsourcing
In a recent Accenture study, cultural issues were listed as one of the main reasons for problems in - Outsource Asp.net Application Development
Software development companies today, provide post maintenance services to build up healthy relatio - Accounting Outsourcing - to Fulfill Your Accounting Needs
Ever business is multidimensional and there are various departments that work together to ensure t - Cleaning Equipment, South Africa, Office Clean
Our offices are vulnerable to disease and illness purely because of the diverse nature of the peopl - Bookkeeping Nyc for an Easy Management of Accounting Transactions
Managing account books is an important consideration for all businesses, no matter large or small. - Outsourced Accounting - for the Smooth Working of an Organization
Optimum utilization of money is crucial for the success of every business organization, no matter b - Outsource Php Programmers
Change is the way of life and adaptation is necessary in this ever changing world. Organizations a - Ten Potential Opportunities in a Time of Crisis
There's no doubt that these are trying times - and very few doubts that they will continue to be s - Ahoy Alloy!
What exactly is an alloy? Since alloys are part of our daily lives, it's important that we have som
Most viewed articles in this category:
- Advantages of Offshore Outsourcing in Information Technology
Offshore Outsourcing - Leverage Information Technology at Cost-effective PricesToday's businesses th - Increase Your Bottom Line By Importing From China
If you are a merchant looking to source your product at much lower cost, have you considered import - Grow Your Business by Outsourcing
Outsourcing conjures up images of large corporate organizations and tenders for jobs such as cleanin - Welcome Back to Your Life - Outsourcing and the Entrepreneur
Do you remember your kids’ names?Ok, maybe that last one is a bit extreme, but let’s fac - Top 5 Myths about EAP
1) You must find an EAP in your city or state. Finding an EAP in your home city or state makes littl - Who to Outsource in Today's Competitive Marketplace? An Idea About Where India and China Stand?
Outsourcing! Dazed of its popularity? But do you really know why outsourcing is the most highlightin - Cheap Sourcing - is it the New Purchasing Game in Town or is it the Most Ancient Practice on Earth
I was invited to participate in a round table discussion along with senior colleagues from the large - Business Globalization
However, the hostile sides can be clearly differentiated. While employers and businesses celebrate b - Tax Return Online Helps you Calculate your Tax Returns Promptly
Preparing taxes can be quiet difficult for you, if you do not have a proper knowledge about calculat - Accountant New Jersey is the Best Option you Can Opt for Financial Issues
A business, however big or small it is, is determined and known by its finances. Apt accounting is t