HomeIco

Home

 InternalIco

Internal
Deutsch|English
Insights Director or senior manager of a China company? Why it is better to agree supplementary contractual provisions now!

Director or senior manager of a China company? Why it is better to agree supplementary contractual provisions now!

PrintMailRate-it
​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​published on 24 April 2024 | reading time approx. 3 minutes

China's new Company Law comes into force on 1 July 2024. The more than 100 amended or added articles will result in significant changes. Among other things, this also affects the internal company structures, rights and obligations of company-internal organs.

Why is it advisable to make the legal relationship between a board member (director) / senior manager and the China company more legally secure in the future, e.g., in an additional contract?

As a rule, the provisions in current articles of association often only contain the old wording of the law. Management by-laws often only contain the allocation of competences between the various company bodies and definitions of matters requiring approval.

However, from 1 July 2024, members of the board of directors and senior managers of a company in China will be subject to extensive obligations, most of which are only very general in the new law. In order to increase legal certainty for both sides and reduce the risk of disputes, a more detailed contractual arrangement can be made, e.g. in a "director's contract" or in an addendum to the manager's employment contract.

Furthermore, under the new law, board members are entitled to compensation in the event of premature dismissal without "good cause". As a rule, the period of appointment regulated in the articles of association is three years. Separate compensation is not normally provided for. The new law contains neither a regulation as to what constitutes good cause nor how compensation would be determined (if applicable). Here too, it is advisable to define grounds for dismissal, for example in the articles of association. In addition, a "director's contract" can also regulate the individual particularities or conditions under which a director can be appointed and, if necessary, dismissed before the end of the appointment period without compensation.

The following might be regulated in a director's contract or the contract with a senior manager:

​​Duties and events relevant to Board members
​Also applies to senior managers
​Need for regulation
​Duty of loyalty to avoid conflicts of interest, e.g. 
  • by exploiting a relationship with a related person,
  • for transactions between the company and the Board member himself 
  • for transactions between the company and close relatives of the Board member (or companies controlled by one of them) 
  • by exploiting a business opportunity for the Board member himself or for others
  • through competition with the company
​Yes

  • ​Prohibited activities
  • Permitted activities
  • Definitio​n of important terms, e.g. "related parties", "embezzlement", "bribery"
  • Procedure when conflicts of interest arise
  • Scope of liability for damages
​
​when the Board votes on relationships with related parties
​No

​ ​
​​Prohibitions on corruption, such as
  • embezzlement
  • bribery
  • unauthorised disclosure of confidential information​
​Yes
​
​Duty of care, i.e. 
  • to act as a normal, prudent employee would to ensure that he/she acts in the best interests of the Company
​Yes
  • ​Scope of the duty of care
  • Special duties of care in individual cases, e.g. due to hazardous nature of production / distribution, or of the product / goods themselves
  • Procedure if there are doubts about instructions from a higher authority
  • Scope of liability for damages​
​Obligation to check the registered capital contributions and to cause the company to send a written reminder to any defaulting shareholder
​No
​Deadlines and procedures to be observed by the Board member
  • Limits of the checking obligation
  • Scope of the Board member's liability for damages​
​Avoiding losses to the company due to violations of laws, regulations or the Articles of Association
​Yes
  • ​Important laws, regulations and clauses in the articles of association in specific individual cases
  • Scope of liability for damages, e.g. for consequential damage
  • Liquidated damages in certain cases
​Avoiding damages to third parties through intentional or grossly negligent behaviour
​Yes
  • ​Differentiation from simple negligence
  • Scope of liability for damages, e.g., for consequential damage
  • Liquidated damages in certain cases
​Avoiding losses for the company and creditors by timely exercising the duties of liquidator
​No
  • ​Duties to be observed by the liquidator, deadlines
  • Scope of the Board member's liability for damages
​Possible compensation of a Board member by the company in the event of early dismissal
​If applicable, severance pay under labor law, which is already sufficiently regulated by law
  • ​Definition of grounds for dismissal that do not trigger a compensation obligation for Board members
  • Foreseeable damage in other cases, and scope of any liability for damages on the part of the company​
​Temporary legally mandatory continuation of the mandate by a departing Board member due to a shortfall in the minimum number of Board members or late replacement
​No
  • ​Deadlines to be observed by the company/shareholders when filling vacancies
  • Possible exemption from liability of the Board member from a defined point in time 
  • Scope of potential liability for damages towards the Board member

From the Newsletter
 


Newsletter China​

Contact

Contact Person Picture

Ralph Koppitz

Partner

+86 21 6163 5328

Send inquiry

How We Can Help

​Rödl & Partner in China​
Skip Ribbon Commands
Skip to main content
Deutschland Weltweit Search Menu