The position of nominee legal representative, known as the legal representative registered with the company registration authority, carries significant legal risks in China's corporate governance system. Under the PRC Company Law, the legal representative is the person authorized to represent the company in legal and business transactions, and bears personal liability for certain corporate obligations. Foreign investors and Chinese business owners who serve as nominee representatives for companies they do not actually control face substantial legal exposure that can be difficult to escape once liabilities arise.

Legal Liabilities of the Nominee Representative

Under the PRC Company Law, the legal representative is the person registered with the Administration for Market Regulation as authorized to act on behalf of the company. Article 10 of the Company Law provides that the legal representative is the chairman of the board, executive director, or manager of the company. The legal representative's signature is required for virtually all corporate filings, contracts, and legal documents. Under Article 13 of the Civil Code, the legal representative's acts within the scope of their authority bind the company. However, under certain circumstances, the legal representative may face personal liability for unpaid taxes, unpaid employee wages, and judgments against the company that cannot be satisfied from corporate assets. Courts may impose travel restrictions and asset freezes on legal representatives of companies with outstanding enforcement obligations.

Strategies for Escaping Nominee Liability

A nominee legal representative seeking to exit the position should take several steps. First, submit a written resignation to the company's shareholders or board of directors, documenting the resignation request. If the company fails to act on the resignation, the nominee may file a petition with the local Administration for Market Regulation for removal of the registration. Second, if the company is defunct or the shareholders cannot be located, the nominee may apply to the People's Court for a declaratory judgment that the nominee is no longer the legal representative. Recent court decisions have recognized that individuals who never actually served as legal representatives or who have resigned from the position cannot be held indefinitely to the registration. Third, after securing removal of the registration, the nominee should publish a notice in an authorized newspaper to provide public notice of the change.

Key Words: Company Formation, Company Registration, Corporate Governance