Management Of Foreign Invested Enterprises In China
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Management of Foreign-Invested Enterprises in China
Overview
Most Foreign-Invested Enterprises (FIEs) in China are overseen by a board of directors and senior management, except for some Cooperative Joint Ventures that operate without incorporation, managed by a management committee instead.
Powers and Responsibilities
The Chairman of the board serves as the legal representative, bearing significant responsibility for the enterprise's actions. The specific powers and functions of the board are detailed in the Articles of Association and the Joint Venture Contract.
Board Composition
For both Wholly Foreign-Owned Enterprises (WFOEs) and Joint Ventures, the board is required to have between 3 and 13 directors. However, enterprises with few shareholders may seek approval to replace the board with an executive director.
Membership and Meetings
In an Equity Joint Venture (EJV), board membership must reflect the capital contributions. The board must include a Chairman, and if a Vice Chairman is also appointed, selection of these roles should alternate between foreign and Chinese parties.
Joint venture boards are required to meet annually, with a quorum of two-thirds of directors. Unanimous consent is needed for significant decisions such as amending the Articles of Association or altering the registered capital. In contrast, WFOE board meetings and quorum requirements are more flexible, governed by their Articles of Association.
Liability
The liability laws for directors and officers are less developed in China compared to Western nations, with a smaller market for liability insurance. The Chairman, as the legal representative, bears civil and criminal liability for the enterprise's actions. Directors can be held accountable for illegal board resolutions or those that breach the Articles of Association, causing company losses. Similarly, directors, supervisors, and senior management can be liable if they violate legal provisions or the articles, resulting in losses.
Management Structure
In Equity Joint Ventures, a General Manager, Deputy General Managers, and a Finance Manager are mandatory appointments. This structure is also commonly adopted by other FIEs, though not required by law.
General Manager
The General Manager oversees day-to-day operations and can be a foreign national. Responsibilities include creating management systems, overseeing production and operations, managing staff (except where board approval is needed), and executing board decisions and business plans. These duties should be clearly outlined in the Articles of Association.
Deputy General Managers and Finance Manager
FIEs can appoint one or more Deputy General Managers, with EJVs required to appoint at least one. It's customary, although not mandatory for all FIEs, to appoint accountants to assist the General Manager with finances.
Supervisory Boards
Limited Liability Companies (LLCs) are technically required to have supervisory boards. However, this requirement is often overlooked by WFOEs and Joint Ventures.
In summary, managing a Foreign-Invested Enterprise in China involves specific roles and structures that must align with both legal frameworks and practical considerations, ensuring a balance between foreign and local interests.
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