In China, all Wholly Foreign-Owned Enterprises (WFOEs) are required to appoint two crucial positions: the Company Legal Representative and the Company Supervisor. These positions must be held by separate individuals, each with distinct roles and responsibilities. In this article, we will delve into the requirements and obligations of these positions within a WFOE. From the Legal Representative’s crucial decision-making authority to the Supervisor’s oversight functions, we will provide a comprehensive understanding of the roles and responsibilities associated with these key positions. Gain valuable insights into the essential requirements for operating a WFOE in China and ensure compliance with the regulatory framework.

Who is the Legal Representative (aka Legal Person) of a WFOE in China?

The Legal Representative of a Wholly Foreign-Owned Enterprise (WFOE) in China plays a pivotal role in ensuring compliance and overseeing the company’s operations. As the authorized representative, the Legal Representative holds significant responsibilities in accordance with Chinese company law. In this article, we explore the essential duties and obligations of a WFOE’s Legal Representative, shedding light on their crucial role in the Chinese business landscape. Gain insights into the key aspects of this important position to navigate the complexities of operating a WFOE successfully.

Who is the Supervisor of a WFOE in China?

The Supervisor of a Wholly Foreign-Owned Enterprise (WFOE) in China serves as a vital oversight role, responsible for monitoring the company’s operations and ensuring compliance. With a focus on corporate governance, the Supervisor plays a crucial role in upholding the interests of the company and its stakeholders. In this article, we explore the key responsibilities and duties of a WFOE’s Supervisor, providing insights into their oversight functions and their role in maintaining legal and regulatory compliance. Discover the significance of the Supervisor’s position and their contribution to the success of a WFOE in the Chinese business environment.

What are the responsibilities of corporate legal representatives and supervisors?

Responsibilities of Legal Representatives:

1. They must exercise their powers in accordance with the articles of association and regulations of the legal entity, as approved by the industrial and commercial department and relevant competent departments.

2. They must conduct civil activities strictly within the approved business scope.

3. They are required to operate in accordance with the law and abide by it.

4. The legal representative must abide by the enterprise’s articles of association, faithfully perform their duties, safeguard the interests of the enterprise, and must not use their position and authority within the enterprise to seek personal gain.

    Responsibilities of Supervisors:

    1. They are responsible for checking the company’s finances.

    2. They supervise the performance of directors and senior executives in the company, and propose the removal of those who violate laws, administrative regulations, the company’s articles of association, or resolutions of the shareholders’ meeting.

    3. They must demand corrections from directors and senior managers when their actions are against the interests of the company.

    4. They have the authority to propose to convene an extraordinary meeting of shareholders, and to convene and preside over a meeting of shareholders when the board of directors fails to perform the duties of convening and presiding over a meeting of shareholders as stipulated by law.

    5. They can make proposals to the shareholders meeting.

    6. They have the right to bring lawsuits against directors and senior managers in accordance with the law.

    7. They have other functions and powers as stipulated in the company’s articles of association.

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      What functions and powers are exercised by supervisors without a board of supervisors?

      Supervisors without a board of supervisors exercise the following functions and powers: inspecting the company’s finances; supervising directors and senior managers’ performance of corporate duties, and suggesting removal of directors and senior managers who violate laws, administrative regulations, the company’s articles of association or resolutions of the shareholders’ meeting; when the behavior of directors and senior managers damages the interests of the company, they require directors and senior managers to make corrections; they propose to hold an extraordinary general meeting of shareholders, and convene and preside over the general meeting of shareholders when the board of directors fails to perform the duties of convening and presiding over the general meeting of shareholders as stipulated by law; they make suggestions to the general meeting of shareholders; they initiate lawsuits against directors and senior managers in accordance with the law; and they have other functions and powers as stipulated in the company’s articles of association.

      What are the terms of reference of the Board of Supervisors?

      According to Article 54 of the “Company Law of the People’s Republic of China”, the scope of powers of the board of supervisors includes:

      1. Checking the company’s finances.

      2. Supervising directors and senior executives performing their duties in the company, and proposing the dismissal of those who violate laws, administrative regulations, the company’s articles of association, or resolutions of the shareholders’ meeting.

      3. Requiring directors and senior managers to make corrections when their behavior damages the interests of the company.

      4. Proposing to convene an extraordinary meeting of shareholders, and convening and presiding over the meeting of shareholders when the board of directors fails to perform the duties of convening and presiding over the meeting of shareholders as stipulated by law.

      5. Making proposals to the shareholders meeting.

      6. Bringing lawsuits against directors and senior managers according to the provisions of Article 152 of this law.

      7. Other functions and powers as stipulated in the company’s articles of association.

      Relevant legal basis related to this article:

      Article 54 of the “Company Law” stipulates that supervisors may attend board meetings as non-voting delegates and raise questions or suggestions on resolutions of the board of directors. If the board of supervisors or the supervisors of companies without a board of supervisors find abnormalities in the company’s business operations, they may conduct investigations. If necessary, they may hire an accounting firm to assist them in their work, and the company shall bear the expenses.

      (Please note that the final round of revisions for the Company Law of the People’s Republic of China (中华人民共和国公司法) is anticipated to take place in August 2023.)

       

      6. About JR & Firm

      At JR & Firm, we have been assisting foreign companies to enter the Chinese market and vice versa – helping Chinese companies to expand their businesses outside of China. We recommend our clients to go through the FAQs below, and if there’s anything not covered here, you are always welcome to contact us, and we will be glad to assist you. With our extensive experience and strong network, we can make the process of registering a WFOE in China for importing and exporting medical equipment as smooth as possible.

      1. What is the first step if I want to register a WFOE?

      The first step towards registering a WFOE in China involves contacting a professional consultancy firm, such as JR & Firm, and signing a service agreement. In theory, the founders could handle the process themselves. However, since it requires an in-depth understanding of the company registration system and proficiency in Mandarin Chinese, it is generally more practical to hire a professional company to prevent potential mistakes during the process.

      2. I have signed a service agreement with JR & Firm to register my WFOE, what's next?

      After signing an agreement with our clients for WFOE registration in China, we issue a formal invoice. At this stage, we anticipate that our clients will make a payment for the service, allowing us to commence the process.

      3. I have paid JR & Firm for the WFOE registration service, what should I do next?

      Upon receiving full payment for the WFOE registration, we provide our clients with a detailed questionnaire. This document requests all the necessary information about the company, business activity, founders (shareholders), and executives (including the company director and supervisor). We request that our clients complete the questionnaire and return it to us via email.

      4. What should I prepare for the WFOE registration questionnaire?

      1. Company Name Choices: In China, WFOE names should follow this structure: [Place of Registration] + [Chosen Name] + [Business Direction] + Co., LTD. For example, Shanghai Silk Road International Trading Co., LTD, or for a consultancy company: Shanghai Silk Road Consulting Co., LTD. An alternative structure is: [Chosen Name] + [(Place of Registration)] + [Business Direction] + Co., LTD. For example: Silk Road (Shanghai) International Trading Co., LTD. Please note, in China, a company’s Chinese name is considered its main name. If our clients know Chinese, we ask for name choices in both Chinese and English, following the above structure. If not, English name choices will suffice, and we will select a corresponding Chinese name based on similar sounds. Avoid city, country, and historical names, as they’re typically disallowed. Also, we discourage direct translations of the English name due to high likelihood of them being taken. We recommend selecting similar-sounding Chinese characters to avoid delays. The Chinese name does not need to have a specific meaning, as meaningful characters are often taken.

      2. Company’s Legal Person (Company Director): The legal person is an individual and cannot be a corporate entity. Please prepare their full name (as on the passport), a copy of their passport (not ID), along with their address, phone number, and email address.

      3. Company’s Supervisor: The company supervisor is a separate individual from the company director, meaning they cannot be the same person. Please provide their full name (as on the passport), a copy of their passport (not ID), and their address, phone number, and email address.

      4. Company’s Shareholder(s): Shareholders are the owners of the company and can be both individuals or corporate entities. Both the company director and supervisor can be shareholders. There can be up to 50 shareholders. Whether an individual or corporate shareholder, full information is required: full names, contact details, address, and either passport copies (for individual shareholders) or a full set of company documents (for corporate shareholders).

      5. Company’s Business Activity: What products and/or services does the company plan to sell? Please prepare a detailed list.

      6. Company’s Registered Capital: The registered capital is the amount the founders plan to invest in the company over a span of 30 years or more. The amount varies depending on the activity and place of registration. We recommend $300,000 for international trading companies and $100,000 for consultancy companies, as examples. The registered capital amount is usually suggested by the local government.

      7. Full Contact Details for All Involved Executives and Shareholders: We need the complete contact details for all executives and shareholders. This includes addresses, emails, and phone numbers.

      5. I submitted the WFOE registration questionnaire to JR & Firm via email, what's next?

      Once we receive the completed WFOE registration questionnaire, we review it carefully and follow up with our clients accordingly. If there’s any missing information, or if the company requires additional permits or licenses based on its planned products or services, we will inform the client. If everything is in order, we prepare the application documents, attach our clients’ documentation, and submit the WFOE registration application. The estimated waiting period for feedback from the government on the registration application is approximately 10 business days. Please note that timeframes in China are approximate due to government bureaucracy.

      6. How long does it take to get my WFOE license after the registration application is submitted?

      Once the WFOE registration application is submitted, the government generally responds within 10 business days. If approved, they will issue the company’s structural documents, which the founders (shareholders) and executives (director and supervisor) are required to sign with a black gel pen and mail back to us (Note: In China, only black gel pens are acceptable for signing legal documents; other colors and ballpoint pens are not accepted). We then submit the signed documents to the company registrar and await the business license. The waiting period for the business license is roughly 10 business days unless expedited service was purchased. With expedited service, a business license can be obtained within 2-5 business days. Contact us for more details about the expedited service.

      7. Great, I have obtained my WFOE business license, what is the next step?

      Once we secure the WFOE business license, we will contact our clients and the bank to schedule an appointment to open a corporate bank account for the company. Please note, the company director must be present in China to open a corporate bank account and their citizenship should not be among the countries sanctioned in the bank’s system. Alongside being present, the director needs to provide a Chinese phone number linked to their passport and a second person’s passport and phone number linked to this second person’s passport. This second person can be anyone in China (provided their citizenship isn’t among the sanctioned countries) with a Chinese phone number. This requirement is due to the banks’ need to issue online banking devices that require two people’s information. Legally speaking, this second person doesn’t have any rights or obligations regarding the company’s finances or bank account. While this might seem unusual, it remains a requirement, so we advise clients to identify such an individual in China before opening a bank account. The bank account opening process takes around 5-6 hours, and we recommend our clients exercise patience during this process.

      8. I have my WFOE bank account opened, what is the next step?

      After your WFOE bank account is opened, we’ll proceed to contact the customs department to initiate the process for the e-port device (if you’re registering an international trading WFOE focused on import/export. Note that e-port isn’t required for consultancy or other types of companies). This process typically takes about 5 business days, and we’ll mail the e-port device to our clients once it’s secured.

      9. I have obtained my e-port device, are there any other steps to be completed before I start my company’s operations?

      Yes, following the acquisition of the e-port for the WFOE, we’ll register the company with the tax department. This process generally takes around 14 business days, and it requires the company director to visit the tax office in person for ID verification.

      10. After the WFOE tax registration, are there any other steps involved before the company becomes active?

      Indeed, the final step in the WFOE registration is the foreign currency permission application. This process typically takes around 7 business days and necessitates a visit to the relevant government department. After securing the foreign currency permission, the WFOE can commence its operations.

      On the whole, the complete process for WFOE registration can span anywhere between 4 and 8 weeks. As we mentioned earlier, all timeframes are approximations due to the inherent unpredictability of government bureaucracy. Although these factors are beyond our control, we will do our absolute best to expedite the process.

      11. What are the responsibilities of a legal representative in a company?

      The legal representative must exercise their powers in accordance with the company’s articles of association and regulations. They must conduct activities strictly within the approved business scope, operate in accordance with the law, and safeguard the interests of the company without seeking personal gain.

      12. What are the responsibilities of a company supervisor?

      A company supervisor is responsible for checking the company’s finances, supervising the performance of directors and senior executives, proposing the removal of those who violate laws or the company’s regulations, demanding corrections when directors and senior managers act against the company’s interests, and bringing lawsuits against directors and senior managers if necessary.

      13. What powers do supervisors without a board of supervisors have?

      Supervisors without a board of supervisors have the power to inspect the company’s finances, supervise directors and senior managers, suggest removal of those who violate laws or the company’s regulations, demand corrections when directors and senior managers act against the company’s interests, propose to hold an extraordinary general meeting of shareholders, and initiate lawsuits against directors and senior managers if necessary.

      14. What is the scope of powers of the Board of Supervisors according to the Company Law of the People's Republic of China?

      The Board of Supervisors has the power to check the company’s finances, supervise directors and senior executives, propose the dismissal of those who violate laws or the company’s regulations, require directors and senior managers to make corrections when their behavior damages the company’s interests, propose to convene an extraordinary meeting of shareholders, make proposals to the shareholders meeting, and bring lawsuits against directors and senior managers.

      15. Can supervisors attend board meetings?

      Yes, according to Article 54 of the “Company Law”, supervisors may attend board meetings as non-voting delegates and raise questions or suggestions on resolutions of the board of directors.

      16. What happens when supervisors find abnormalities in the company's business operations?

      If supervisors find abnormalities in the company’s business operations, they may conduct investigations. If necessary, they may hire an accounting firm to assist them in their work, and the company shall bear the expenses.

      17. What is the role of a legal representative in safeguarding the interests of the company?

      The legal representative must abide by the enterprise’s articles of association, faithfully perform their duties, and safeguard the interests of the enterprise. They must not use their position and authority within the enterprise to seek personal gain.

      18. Can a legal representative perform activities outside the approved business scope?

      No, a legal representative must conduct civil activities strictly within the approved business scope.

      19. What is the role of a supervisor in relation to the board of directors?

      A supervisor has the authority to supervise the performance of directors and senior executives in the company, and propose the removal of those who violate laws, administrative regulations, the company’s articles of association, or resolutions of the shareholders’ meeting.

      20. Are there any upcoming changes to the Company Law of the People's Republic of China?

      Yes, the final round of revisions for the Company Law of the People’s Republic of China is anticipated to take place in August 2023.

      21. Based on the Current Chinese Company Law of 2006, can the supervisor of a China WFOE liquidate the company or sell it?

      According to the Chinese Company Law of 2006, the liquidation or sale of a China WFOE is typically carried out by the company’s shareholders or the board of directors. The role of the supervisor in this process is primarily focused on overseeing the company’s operations, checking the company’s finances, and ensuring compliance with laws and regulations.

      While the supervisor does not have the direct authority to initiate or carry out the liquidation or sale of the company, they play an important oversight role during these processes. They are responsible for monitoring the actions of the board of directors and senior executives to ensure that the liquidation or sale is conducted in accordance with the law and in the best interests of the company.

      It is important to note that specific procedures and requirements for the liquidation or sale of a China WFOE may vary depending on factors such as the company’s articles of association, the applicable laws and regulations, and any contractual agreements in place. Therefore, it is recommended to consult with professionals like JR & Firm familiar with Chinese company law and seek appropriate guidance specific to your situation.

      22. Based on the Current Chinese Company Law of 2006, can the Legal Representative (aka Legal Person) of a China WFOE liquidate the company or sell it?

      According to the Chinese Company Law of 2006, the Legal Representative (aka Legal Person) of a China WFOE does not have the unilateral authority to liquidate or sell the company. The decision to liquidate or sell a China WFOE typically lies with the company’s shareholders or the board of directors.

      The Legal Representative has important responsibilities in representing the company and exercising its powers in accordance with the articles of association and regulations. However, major decisions such as liquidation or sale usually require the approval of the shareholders or the board of directors, as stipulated in the company’s governing documents and relevant laws.

      It is essential to follow the specific procedures and requirements outlined in the company’s articles of association, as well as comply with the applicable laws and regulations governing the liquidation or sale of a China WFOE. Seeking legal advice and guidance from professionals like JR & Firm familiar with Chinese company law is highly recommended to navigate these processes accurately and in compliance with the law.

      23. Based on the Current Chinese Company Law of 2006 or other relevant laws, does the supervisor or a legal person of a China WFOE have access to companies bank accounts?

      According to the Chinese Company Law of 2006, the supervisor of a China WFOE does not have inherent access to the company’s bank accounts. The primary responsibility of the supervisor is to oversee the company’s operations, check the company’s finances, and ensure compliance with laws and regulations.

      On the other hand, the Legal Representative (Legal Person) of a China WFOE typically has the authority to manage and access the company’s bank accounts. As the legal representative, they are entrusted with the overall management and operation of the company, including financial matters.

      However, it is important to note that the specific access and control over the company’s bank accounts can be regulated through the company’s internal policies, articles of association, and relevant agreements. These documents may define the roles and responsibilities of individuals within the company regarding financial matters and access to bank accounts.

      To accurately determine the specific access rights and responsibilities related to a China WFOE’s bank accounts, it is advisable to review the company’s internal documents, including the articles of association, and seek legal advice from professionals well-versed in Chinese company law and regulations.

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