Responsibilities and liabilities of the the General Manager in Foreign invested companies in China


By: Alex Wu, Donia Joevion Fuller-Barrett     On: 2016-08-01

Introduction 

The Role of the General Manager 

The extent of the duties to be executed by the general manager is delineated in Article 49 of the Company Law. These duties include overall responsibility for the production, operation and management of the company, organization of the implementation strategies in relation to resolutions of the board of directors and the yearly business and investment plans of the company, the drafting of the plan for the establishment of the company’s internal management organization, basic management system and the formulation of the particular rules and regulations of the company. The general manager also has human resource functions including: requesting the employment or dismissal of the deputy manager(s) and person(s) in charge of financial affairs of the company and making decisions on the hiring or terminal of management personnel other than those to be employed or dismissed by the board of directors. In addition, the general manager may exercise function and powers which have been delegated to him/her by the board of directors. Throughout the execution of his/her duties, the General Manager reports to the board of directors, whose role and responsibilities will be discussed in the fourth article in this five part series of articles.

Risks and Liabilities Associated with the Role of General Manager

Not surprisingly, given the responsibilities attendant to the role of general manager, this person is deemed to be a “senior officer” of the Company under Chinese Company Law. Therefore, like the legal representative and supervisor discussed in the first and second articles in this five part article series, the general manager has a duty to adhere to laws, administrative regulations and the articles of association of the company. In addition, the holder of the post has a fiduciary obligation and an obligation of diligence to the company. Therefore, the general manager cannot take advantage of his/her position and powers to collect or accept bribes or other illegal income, and may not encroach upon the property of the company. Other activities that are prohibited are mentioned in Article 149 and includes:

  1. Misappropriation of company funds;
  2. Depositing of the funds of the company in an account opened in his personal name or in the name of another individual;
  3. Violation of the articles of association of the company, by lending the funds of the company to other persons or by using of the property of the company to provide security for other persons without the consent of the board of shareholders, general meeting or the board of directors;
  4. entering into a contract or transaction with the company in violation of the articles of association of the company or without the consent of the board of shareholders or general meeting;
  5. taking advantage of the convenience of his position to seek for himself or other persons commercial opportunities that belong to the company or to operate by himself or for another person the same type of business as that of his company without the consent of the board of shareholders or general meeting;
  6. accepting as his own the commissions of a transaction between another person and the company;
  7. disclosing the secrets of the company without authorization; or
  8. doing any other act that violate his fiduciary obligation to the company.

If a general manager engages in any such activity, the income derived from it is recoverable by the company and if he causes loss to the company, he must compensate the company.

It is also prudent to note that there is scope for the incurring of criminal liability on the part of a general manager. For instance, the Criminal Law in Article 163 makes it an offence to use one’s job opportunity to demand property from others, or illegally receive others property in exchange for benefits. In cases of relatively large amounts, punishment may be detention for up to five years and imprisonment for over five years in the case of very large sums as well as forfeiture of property. Therefore, any person taking on this role must be careful to consider not just the powers, but also the liabilities which are attendant to the post.

Exercise Caution in Choosing a General Manager

Company legislation in several parts of the Western world usually tries to ensure that multiple roles in a company do not vest in one individual. However, several deviations from this model may be found in Chinese Company Law. So that the person chosen to act as legal representative must be selected from among, the chairman of the board, the executive director or the manager of the company. Thus, there is a real possibility that the general manager could also be the legal representative. In part one of this five part article series, some of the challenges associated with the legal representative role have been discussed and even a cursory reading of that article would show that it is extremely critical to exercise care in filling this role. Moreover, even if the two roles are vested in one individual, when that person acts in the capacity of general manager, he/she reports directly to the board members. Therefore, individuals with a common, cohesive mindset in relation to the company, its goals, vision and the direction in which it wishes to go would be required, obviously this may prove to be a challenging feat. 

In the case of larger companies and joint ventures, it may be best to appoint a management office as opposed to a singular general manager. This does not mean that there would be no general manager, but rather that there would be several deputy managers so that the duties of the general manager is not vested into one individual, especially where that individual is also going to serve as the company’s legal representative. In the event that the company decides to have a singular general manager, compliance guard systems like that which is offered by Asia Base Law and Projects may be useful to fill the gap that a team of managers may be better able to fill.

Another precautionary measure is to ensure that the Articles of Association are clear as to the function of general manager or the management office if the latter is to be the route taken. Also, the articles must be clear as to their appointment and removal, especially if the general manager is also to be the legal representative. In consideration of the practical outworking of these precautions, it may be advisable that a company considers mechanisms like those which form a part of Asia Base Law and Projects’ Corporate Compliance Guard which facilitates a smooth transition process all the while paying attention to authority compliance. Therefore, potential succession issues which can arise where a new general manager blames non-compliance on the outgoing general manager and vice versa would be avoided.