Key points on legal representative removal under new Company Law

In judicial practice, courts have previously adopted inconsistent approaches to requests for removal of a legal representative’s registration following resignation. Article 10 of the new Company Law now expressly sets out the rules for the appointment and resignation of legal representatives, providing a direct legal basis to support such removal actions.

This article summarises the main adjudication points in actions for removal of legal representative registration, based on judicial decisions following the implementation of the new Company Law.

No requirement for prior appointment of a new legal representative. Article 10(3) of the new Company Law stipulates that a company must appoint a new legal representative within 30 days of the resignation of the incumbent. This provision allows for a vacancy in the position of legal representative for up to 30 days, indicating that the role is not indispensable at all times.

The obligation to appoint a new legal representative lies with the company, and the removal of the former legal representative’s registration should not be hindered by the company’s failure to make a timely appointment. In cases such as Xin 0102 Min Chu No. 9019 (2024) and Su 1311 Min Chu No. 5096 (2024), the courts held that removal of the legal representative’s registration did not require the prior appointment of a successor, and the company must bear the risk of any vacancy.

A point of discussion is whether the resignation of a legal representative who also serves as a director, resulting in the board falling below the statutory minimum, affects the removal of registration. Some argue, with reference to article 70 of the new Company Law, that removal should not be supported in such circumstances. However, this view is debatable.

Article 70 only requires continued performance of the duties of “director”, not “legal representative”, and the two roles should be distinguished. In the above-mentioned cases, the legal representative was also the executive director, and although no new executive director had been appointed, the courts still supported the removal of registration.

Requirement of no substantive connection with the company. Article 10(1) of the new Company Law provides that the legal representative must be a director or manager who actually represents the company in its affairs. This means the legal representative must not only formally hold the position but also substantively participate in the company’s management. If the legal representative does not actually participate in management and has no substantive connection with the company, courts generally support the removal of registration.

However, if the legal representative remains a shareholder after resignation, courts may find that a substantive connection persists and may not support removal, as in Hu 0115 Min Chu No.46947 (2024).

Exhaustion of internal remedies. Article 10(2) of the new Company Law provides that “resignation from the position of director or manager is deemed to be a simultaneous resignation from the position of legal representative”. In conjunction with article 70 of the new Company Law and article 933 of the Civil Code, resignation is a unilateral act effective upon the company’s receipt of notice. Thus, a legal representative may resign by stepping down as director or manager, without the need for an internal company resolution. Nevertheless, under the principle of corporate autonomy, the prevailing view is that judicial intervention is justified only when the legal representative has exhausted all internal remedies and is still unable to effect the removal of registration. Courts will consider factors such as the legal representative’s shareholding, positions held and the company’s operational status.

For example, in Hu 0115 Min Chu No. 46947 (2024), the court found that the legal representative, holding 81% of the company’s shares, could convene a shareholders’ meeting to pass a resolution for replacement, and therefore, without exhausting internal remedies, judicial support was not granted.

In Hu 0118 Min Chu No. 10582 (2024), the court held that, as the company was in a state of licence revocation but not yet deregistered, and the company and its actual controller could not be contacted, while the legal representative and another shareholder each held 50% of the shares it would be difficult to reach a resolution on re-election even if a shareholders’ meeting were convened.

As it was no longer practicable to carry out re-election and removal through internal company procedures, the court supported the removal of the legal representative’s registration.

No malicious evasion of debts or responsibilities. As registration of the legal representative is a matter of public record, it is crucial for transactional stability and creditor protection. To prevent malicious evasion of debts or responsibilities, courts will examine the background and legitimacy of the removal request.

If the company is subject to dissolution or bankruptcy, or has entered liquidation, the legal representative is obliged to transfer assets, licences, seals and financial records to the liquidation team or administrator. In such cases, courts generally do not support removal of registration, as seen in Zhe 1082 Min Chu No. 3124 (2024) and Hu 0109 Min Chu No. 6280 (2024).

If the company has been listed as a dishonest judgment debtor, or the legal representative is subject to consumption restrictions, courts will scrutinise whether the legal representative is responsible for the company’s debts, whether a substantive connection remains, and whether there is any malicious evasion of debts or responsibilities.

The new Company Law provides a direct legal basis for supporting the removal of legal representative registration, which is of significant practical importance. In such disputes, judicial intervention to some extent intrudes upon corporate autonomy and involves balancing the interests of legal representatives, company creditors and other stakeholders. As a result, courts generally adopt a cautious approach.

Yi Xiangming is a partner and Zhang Huan is a paralegal at Zhong Lun Law Firm