CHINA Law and Practice Contributed by: Kevin Wang, Global Law Office
• externally, the company shall bear civil liabil - ity; and • internally, the company may claim indemnifi - cation against the legal representative at fault. That means, for the protection of the legal rep - resentative in the performance of their duty, nor - mally the plaintiff is required to first bring a case against the company itself instead of the legal representative. Liability to Third Parties for Directors or Officers Performing Duties If a director or an officer acts in their official capacity and causes damage to other third par - ties, the company shall be liable for compensa - tion. Directors and officers who have malign intention or act with gross negligence shall also be liable for compensation. Either the company or its directors or officers can be listed as defendant in the lawsuit. In reality, it is expected that both the company and its directors and officers will be listed as co-defendants at the same time as a result of litigation strategy. It is more clear, however, that the company will normally bear the responsi - bility first. It will be the company’s decision on whether to claim indemnification against direc - tors, officers or the legal representative. Claims Against Controlling Shareholders and Actual Control Persons (Shadow Shareholders and Shadow Directors) In addition, the new revision to the Company Law adds the following liabilities of controlling shareholders and actual control persons. To some extent, this revision tries to solve some serious governance problems caused by Shad -
ow Shareholders or Shadow Directors who are manipulated by controlling shareholders or actu - al control persons in practice. • The other shareholders shall have the right to request the company to acquire a controlling shareholder’s equities, who abuses share - holder rights with prejudice to the interest of the company or other shareholders, at a reasonable price. • The controlling shareholders or actual control persons of the company who do not serve as its directors but attend to the company’s affairs shall also undertake duties of loyalty and diligence. • The controlling shareholders or actual con - trol persons instruct a director or officer to engage in any act against the interests of the company or shareholders, the controlling shareholders or actual control persons shall be jointly and severally liable. • From the perspective of actual sharehold - ers having significant influence over the company’s operation and management, it is worthwhile to further explore the issue of recognising them as substantive directors, or recognising them as having the same liquida - tion obligations as directors. 4.10 Approvals and Restrictions Concerning Payments to Directors/ Officers According to the Company Law, remuneration, fees or benefits payable to directors are decided by the shareholder meeting. Payments to the manager are decided by the board of directors, and payments to the deputy manager and chief financial officer are decided by the board of directors upon proposals by the manager. In a publicly traded company, when the board of directors or the remuneration and assessment
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