In order to fully understand the governance of a WFOE in China, it is important to understand who the key members of a WFOE are and what are their main responsibilities.
The aim of this article is to provide you with a better understanding of who is the authorized representative of the shareholder of a WFOE in China and what importance this role has in decision-making.
Key members of a WFOE in China
Any Wholly Foreign-Owned Enterprise (WFOE) in Mainland China must have (a) a Legal Representative, Managing Director or Board of Directors, (b) a Supervisor and (c) may have a General Manager. It is required to determine those positions during the WFOE setup phase. If you would like to know more about the specifics of the positions we just elaborated upon, please read our article by clicking here.
The Legal Representative vs Authorized Representative
The Legal Representative of a WFOE in China bears complete responsibility of the entity's actions and maintains full authority over the company chops, which can be used to make legally binding decisions on behalf of the WFOE. This means that this person is entitled to engage in any business activity on behalf of the company under PRC law and the Articles of Association (AoA). But on the downside this individual is responsible in case of any discrepancies and issues with governmental authorities in China.
For a WFOE, the shareholder(s) represent the highest authority of the company, whose decisions regarding company operations are executed by the Legal Representative.
The Authorized Representative (or Representative of the Shareholder) is the signatory on behalf of the shareholder. In essence, this person would sign any time a so-called "shareholder decision" which are generally required to set up a WFOE in China, for any major change relating to the structure of the WFOE and liquidation of a WFOE in China among others. It is important to note that the authorized representative is a person of importance as they have the signing authority to make decisions on behalf of the shareholder.
If the shareholder is a foreign company, normally all Directors of this company would need to sign on behalf of the shareholder for any major decision. In order to simplify the proceedings, many organizations appoint one Authorized Representative. Please note that it is possible for the Legal Representative and the Authorized Representative to be the same person.
How is an Authorized Representative Appointed/Changed?
Whereas it is legally required to register a Legal Representative with the Chinese authorities, the Authorized Representative is not. As this position is not officially registered, the Chinese authorities' understanding of whom is the representative of the shareholder is based on whom signed the last shareholder decision, where the first shareholder decision is signed during the establishment of the WFOE. Please note that all shareholder resolutions which have been passed are filed with the Administration of Industry and Commerce (AIC).
In order to appoint an Authorized Representative, it is important to determine whom has the right to sign on behalf of the foreign company, or whom would be granted this signing authority. For this the shareholder would generally have to provide the following documents:
Individuals with signing authority in the shareholding company: usually the Directors of a company, the owner of the company or certain senior management personnel have the authority to sign on behalf of the company which owns a subsidiary in China. This information could be stipulated in a number of corporate documents such as an Extract of the Chamber of Commerce, the Articles of Association or the Certificate of Incorporation.
Individual whom is appointed Authorized Representative: if the above documents do not clearly specify one single individual having the sole authority to sign on behalf of the company, a so-called "Power of Attorney" (or a "Director's Resolution") must be prepared explaining that ONE individual can sign on behalf of the shareholder of the WFOE in China.
In case the individual whom was appointed as authorized representative has left your organization, we would recommend to update this at the AIC to proof this person no longer holds any signing authority. For this, similarly to the appointment of an authorized representative, you will be required to supply documents which proof the individuals' signing authority in the shareholding company has changed (i.e. an update to the Extract of the Chamber of Commerce or AoA). Subsequently, in order to complete the change of Authorized Representative, an amendment must be made to the Articles of Association of the WFOE through a shareholder decision signed by the new authorized representative.
Please note that since China is not part of the Apostille convention, documents from a foreign country will only be accepted by the Chinese authorities after these are legalized by the Chinese Embassy or Consulate in that foreign country.
As the Authorized Representative has the power to make decisions on behalf of the shareholder of a WFOE in China, it is important to select this person with care and lodge an update with the Chinese authorities in case of any changes.
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