Legal Representative's Question: Who am I? From where? Where are we going?

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Under the modern company system, the legal representative is the natural external representative of the company, and can engage in civil activities in the name of the company, and its legal consequences shall be borne by the company. The selection of the legal representative will directly affect the corporate governance, which is particularly important for the company's operation. The new Company Law has responded to many “intractable problems” existing in the operation of corporate governance before, and has made a series of targeted amendments, including the selection, resignation and matters related to the change of the company's legal representative. On July 1, 2024, when the new Company Law is about to come into effect, this paper intends to briefly analyze and interpret the relevant provisions of "election, resignation and change" of legal representatives under the new Company Law.

1. The appointment and resignation of the legal representative under the New Company Law

01, the selection of legal representatives

Under the old Company Law, the legal representative of a company can only be the chairman of the board or an executive director without a board of directors and a manager, while according to the provisions of Article 10, paragraph 1, of the new Company Law, the legal representative of a company can be a “director or manager who carries out corporate affairs on behalf of the company”, and the scope of persons who can act as legal representative has been significantly expanded.

The term “director performing corporate affairs on behalf of the company” is not “executive director without a board” under the old Company Law, but refers to the executive officers of the company performing corporate affairs, including the chairman, deputy chairman, director (executive affairs), manager, deputy manager, head of finance, secretary of the board of directors of a listed company and other personnel as provided for in the articles of association of the company.

It is worth noting that although the legislative intent of this article is to strengthen the substantive participation of the legal representative in corporate governance, avoid “nominal legal representative”. However, the author believes that with the expansion of the scope of persons who can serve as legal representatives and the simplification of replacement procedures, this article may bring new situations and challenges in practice in addition to protecting the rights and interests of nominal legal representatives, and I believe that there will be further judicial interpretations to connect with this article.

02. Resignation of the legal representative

Compared with the old Company Law, the new Company Law adds a new rule on the resignation of legal representatives, which is directly stipulated in Article 10, paragraph 2, and the matching provision is in Article 46, paragraph 7 (the formation and change method of the company's legal representative).

According to the provisions of Article 10 (2), although the legal representative of the company represents the company externally, the legal representative is not in essence a position or position established separately by the company, but is attached to the “office of director or manager performing the affairs of the company”. If a director or manager who serves as the legal representative resigns, he shall automatically be deemed to have resigned as the legal representative of the company.

Combined with the provisions of Article 46, the articles of association of a limited liability company need to record the “legal representative, change method”, no longer need to record the “legal representative” (that is, its name). This means that when the company's legal representative resigns, it no longer needs to modify the company's articles of association simultaneously, and it is more clear that the resignation act of the legal representative is a unilateral legal act, that is, the notice of resignation will have legal effect when it reaches the company, and the company's consent or approval is not required.

It should be noted that this paragraph, while fully respecting the wishes of the legal representative himself, will significantly reduce the various litigation between the company and the legal representative over the change of legal representative. But in essence, it puts forward higher requirements for the internal governance of the company, and requires the company to make specific and systematic arrangements for the generation and change of legal representatives in the articles of association that meet its actual needs.

Legal basis:

Article 10 of the new Company Law

The legal representative of a company shall, in accordance with the articles of association of the company, be a director or general manager who carries out the affairs of the company on behalf of the company.

Where a director or manager who serves as the legal representative resigns, he shall be deemed to have resigned the legal representative at the same time.

If the legal representative resigns, the company shall appoint a new legal representative within 30 days from the date of resignation of the legal representative.

Article 46 of the new Companies Act

The articles of association of a limited liability company shall state the following:

(1) Name and domicile of the company;

(2) the business scope of the company;

(3) the registered capital of the company;

(4) the name of the shareholder;

(5) the amount, method and date of contribution of the shareholder;

(6) the organization of the company, its formation method, functions and powers, and rules of procedure;

(7) The method for the formation and change of the company's legal representative;

(8) Other matters deemed necessary by the shareholders' meeting.

The shareholders shall sign or seal the articles of association.

Second, under the new “Company Law”, the change of legal representative and registration procedures

In practice, the company's legal representative changes, there are mainly three situations: (1) the original legal representative voluntarily resigns; (2) The original legal representative is dismissed by the company; (3) The original legal representative no longer holds the position of director or manager.

In practice, when the above situation (2) occurs, it is generally a dispute or disagreement between the shareholders of the company, which leads to the competition for “control” of the company, which is a high incidence of litigation. After the shareholders' meeting resolved to remove the senior executive position of the original legal representative, the legal representative was changed, and after the appointment of a new legal representative, the original legal representative refused to cooperate with the signing of the application for registration of the change, resulting in the failure to handle the registration of the change, which led to the impasse in corporate governance, and led to a series of lawsuits such as company change registration.

In view of the problems in practice, the State Administration for Market Regulation promulgated on March 1, 2022, the Implementation Rules of the Regulations of the People's Republic of China on the Administration of Registration of Market Entities (Article 35) makes it clear that the change registration application for the replacement of the legal representative shall be signed by the new legal representative. However, due to the effectiveness of departmental rules and regulations, local market supervision and management departments are inconsistent in the implementation of the standard and rigid application of laws, which has resulted in a large number of administrative lawsuits (see the civil judgment of the People's Court of Zhanyi District, Qujing City, Yunnan Province: (2023) No. 143 in the beginning of Yun 0303 line).

To this end, Article 35, paragraph 3 of the new Company Law clearly stipulates that if the company changes its legal representative, the application for registration of the change shall be signed by the legal representative after the change. After the formal implementation of the new Company Law, it will effectively solve the “mutual deniability” in the legal representative change procedure in the past practice, and provide a clear legal basis and guidance for the procedure of changing the registration of legal representatives, so as to effectively reduce the occurrence of corporate governance deadlock.

Legal basis:

Article 35 of the new Companies Act

When a company applies for change registration, it shall submit to the company registration authority an application for change registration signed by the company's legal representative, a change resolution or decision made according to law and other documents.

Where the alteration of the registered items of a company involves the amendment of the articles of association, the amended articles of association shall be submitted.

If the company changes its legal representative, the application for registration of change shall be signed by the legal representative after the change.

Article 33 of the Implementing Rules of the Regulations of the People's Republic of China on the Administration of Registration of Market Entities

The registration application for change of legal representative, executive partner (including appointed representative) and person in charge of the market entity shall be signed by the new legal representative, executive partner (including appointed representative) and person in charge.

The legal representative of a company is a “key minority” in corporate governance. The new Company Law has made a series of major amendments to the provisions of the appointment, resignation, and change of legal representatives, and requires the company to improve its internal governance level. We suggest that business owners make personalized arrangements for the generation and change of legal representatives in the articles of association according to their actual needs, so as to avoid company deadlock and ensure the long-term and stable development of the company.

References:

1. See Li Jianwei, Commentary on Company Law, 1st Edition, May 2024;

2. Refer to the civil judgment of Zhanyi District People's Court, Qujing City, Yunnan Province: (2023) Yun 0303, No. 143