The Legal Representative is a unique corporate role in China with authority to bind the company—and potential liability exposure. Learn what the role entails, who should take it, and how to manage risks.

The role of Legal Representative is one of the most misunderstood aspects of doing business in China. Clients new to the market often ask: What exactly does a Legal Representative do, and what liability do they face compared to other directors and officers?

What Is a Legal Representative?

In China, every company must designate a Legal Representative—a senior employee or officer registered with the authorities who has the formal authority to bind the company. This is not your external legal counsel, but an internal corporate role required by law.

The main purpose is clarity of authority, not assigning blame when things go wrong. For government filings, signing major contracts, and other official acts, the Legal Rep’s authority is recognized and public. In China, where the company chop alone can make documents binding, having a publicly registered, identifiable Legal Rep helps ensure trust and certainty for counterparties.

Who Should Take the Role?

For locally owned companies, the role usually goes to the person with the most skin in the game—the owner/operator.

For multinationals, it can be more like a game of “hot potato” as executives decide who will take on the position. Common candidates include:

• Senior officers such as the CFO or General Counsel
• Someone stable and long-term in the organization (to avoid frequent replacements)
• Sometimes someone outside China—to limit local authority and provide a degree of insulation from potential wrongdoing

Liability: More Limited Than Many Think

While the term “Legal Representative” sounds like a liability magnet, the risks are often overstated.

Like any director or officer, the Legal Rep may face:

• Administrative liability (fines)
• Criminal liability (rare, and usually tied to clear intent and serious harm)
• Chinese Company Law links liability to being the “person in charge” or “directly responsible.” This generally requires knowledge or at least constructive knowledge—that is, you should have known something was wrong.

These standards are similar to fiduciary duties familiar in other jurisdictions:

• Duty of care: Provide reasonable oversight, be informed before making decisions
• Duty of loyalty: Put the company’s interests first, avoid self-dealing, disclose conflicts

Risk Management for Legal Reps

To reduce exposure:

• Document decision-making and keep clear records
• Maintain strong internal policies and controls—their absence can lead to negative presumptions
• For MNCs, consider having the Legal Rep based outside China for added distance from operational misconduct

Higher-Risk Sectors and Activities

Certain industries and behaviors attract heightened scrutiny:

National security–related technology

• Sensitive health or personal data
• Tax evasion
• Intellectual property infringement
• Bribery and corruption (especially government bribery)
• Even if conduct falls short of criminal prosecution, administrative penalties can apply. Criminal liability generally requires proof of intent and substantial harm.

What the Legal Rep Is Not Liable For

Routine business failures—like breach of contract—do not automatically expose the Legal Rep to personal liability. They are not personally on the hook for unpaid debts unless they personally misled creditors or engaged in misconduct.

One area to watch: if your company is insolvent, has unpaid creditors, or has not fully contributed its registered capital, you need to protect creditor interests during liquidation. Liability risk increases slightly in these situations.

A New Leniency Mechanism

China has introduced a “non-prosecution system” for companies that:

• Proactively disclose problems before being investigated
• Show remorse and cooperate
• Have a robust compliance program in place
• This approach is similar to the U.S. Department of Justice’s voluntary disclosure programs.

Final Thoughts

The Legal Representative role isn’t one executives race to accept, but the risks are often exaggerated. In most cases, it’s about basic corporate governance and fiduciary duties that seasoned executives already understand. With proper controls and awareness, serving as Legal Rep can be managed without undue fear.

In a dispute with your Chinese supplier or business partner? Contact us at inquiries@chinalawsolutions.com