Clients often consult lawyers: "Our group company plans to establish a project company externally and has decided to appoint me as the legal representative of the company. Lawyer, could you tell me about the powers I will have as this legal representative and the risks I may face in performing my duties?" This article specifically analyzes these issues:

I. Overview of Legal Representative

1. Concept of Legal Representative

A legal representative of an enterprise refers to the person in charge who exercises powers and performs obligations within the scope of authority stipulated by national laws, regulations and the enterprise's articles of association, represents the enterprise in civil activities, assumes overall responsibility for the production, operation and management of the enterprise, and accepts the supervision of all members of the enterprise and relevant authorities.

2. Qualifications for Serving as a Legal Representative

According to the provisions of the Company Law, the legal representative of a company shall be the chairman of the board of directors, the executive director or the manager in accordance with the provisions of the company's articles of association, and shall be registered in accordance with the law.

Therefore, a person who serves as the legal representative of a company must hold one of the positions of chairman of the board of directors, executive director or manager, and is a senior manager of the company.

In addition, based on their status as senior managers, a person shall not serve as the legal representative of a company if he/she falls under any of the following circumstances:

• ① Having no capacity for civil conduct or having limited capacity for civil conduct;
• ② Having been sentenced to criminal punishment for corruption, bribery, encroachment of property, misappropriation of property or disruption of the socialist market economic order, and less than five years have elapsed since the completion of the execution of the punishment; or having been deprived of political rights for committing a crime, and less than five years have elapsed since the completion of the execution of the punishment;
• ③ Having served as a director, factory director or manager of a company or enterprise that has gone through bankruptcy liquidation, and being personally liable for the bankruptcy of such company or enterprise, and less than three years have elapsed since the completion of the bankruptcy liquidation of such company or enterprise;
• ④ Having served as the legal representative of a company or enterprise that has had its business license revoked or been ordered to close down for illegal activities, and being personally liable for it, and less than three years have elapsed since the revocation of the business license of such company or enterprise;

• ⑤ Having large amounts of personal debts that are due but unpaid.

II. Powers of Legal Representative

A legal representative is a person in charge who represents a legal person in civil activities externally in accordance with the provisions of laws, regulations or the articles of association of the legal person, and his/her powers include statutory powers and authorized powers:

1. Engaging in civil activities in the name of the legal person, with legal consequences borne by the legal person

According to the relevant provisions of the Civil Code, a legal representative may participate in civil activities externally in the name of the company, including but not limited to commercial negotiations, contract signing, litigation participation, document signing, etc. The above powers are legally enjoyed by the legal representative and do not require special authorization.

2. Other powers enjoyed in accordance with the authorization of the company's articles of association

Since the legal representative is held by one of the chairman of the board of directors, executive director or manager, he/she enjoys the relevant rights conferred by the company's articles of association on senior managers of the company. However, in accordance with the rules of apparent agency, the authorization or restriction of the legal representative by the articles of association shall not be asserted against a bona fide third party.

III. Risks Faced by Legal Representative in Performing Duties and Preventive Suggestions

1. Civil Liability

① Civil liability for compensation to the legal person of the entity due to operational faults

The operational activities conducted by the legal representative of a company in the name of the company are acts performed in the course of performing his/her duties, and the relevant civil liabilities arising therefrom shall be borne by the company. If the legal representative engages in ultra vires acts, and such acts constitute the elements of apparent agency (i.e., a third party has sufficient reason to believe that the other party to the transaction is acting on behalf of the company), the company shall bear corresponding legal liabilities to the third party for the acts of the legal representative.

Reminder: A legal representative of an enterprise must strictly obtain authorization when signing documents.

② Liability to compensate the company for losses caused to the company intentionally or negligently by the legal representative

Article 149 of the Company Law: "Where a director, supervisor or senior manager, in performing his/her duties for the company, violates the provisions of laws, administrative regulations or the company's articles of association and causes losses to the company, he/she shall be liable for compensation".

Reminder: A legal representative must strictly abide by laws, regulations and the company's articles of association.

2. Administrative Liability

Where an enterprise legal person is under any of the following circumstances, in addition to the liability to be borne by the legal person, administrative sanctions or fines may be imposed on the legal representative; if a crime is constituted, criminal liability shall be pursued in accordance with the law:

• ① Engaging in illegal business operations beyond the business scope approved and registered by the registration authority;
• ② Concealing the truth and practicing fraud against the registration authority and tax authority;
• ③ Withdrawing capital funds or concealing property to evade debts;
• ④ Unauthorized disposal of property after dissolution, revocation or declaration of bankruptcy;
• ⑤ Failing to apply for registration and announcement in a timely manner upon change or termination, causing heavy losses to interested parties;
• ⑥ Engaging in other activities prohibited by law, harming national interests or social public interests.

In accordance with the above legal provisions as well as other relevant laws, regulations and judicial interpretations, under certain circumstances, the legal representative may bear corresponding administrative liabilities for the illegal and irregular acts of the company.

Reminder: Strictly abide by all procedural provisions in business activities; business activities must be conducted within the scope prescribed by law, including paying attention to fire protection and taxation aspects.

3. Criminal Liability

Where a company or enterprise engages in illegal or criminal activities in the course of production and operation, the legal representative and the persons primarily responsible shall bear corresponding criminal liabilities.

In China's Criminal Law, a system of combining single punishment and double punishment for unit crimes is implemented, that is, for some unit crimes, only the liability of the unit is pursued; for some unit crimes, only the liability of the persons in charge and the persons primarily responsible is pursued; and for some unit crimes, both the liability of the unit and the liability of the persons in charge and the persons primarily responsible are pursued. The main charges include:

• Crimes related to the production and sale of fake and shoddy commodities;
• Smuggling crimes;
• Commercial bribery crimes;
• The crime of illegally absorbing public deposits, the crime of fund-raising fraud;
• Crimes of infringing on intellectual property rights;
• Crimes of illegal business operation, etc.

Reminder: A legal representative shall carefully understand the company's business before taking office, abide by laws and regulations in daily business activities, refuse bribery and corruption personally, and at the company level, if there are illegal businesses, shall stop losses in a timely manner, prevent and report them in a timely manner, and refrain from becoming the person primarily responsible for unit crimes.