In China, liability for business operations is shared between the business entity and its personnel. Individuals can face fines or even imprisonment for actions taken in the course of business activities.
The concept of personal liability in China differs significantly from business practices in other countries, especially Western ones. While Western jurisdictions typically maintain a clear separation between corporate and personal liability, Chinese law takes a more integrated approach. In the West, corporate officers are generally protected from personal liability unless there’s clear evidence of fraud or intentional misconduct. However, in China, personal liability can arise from operational oversights, regulatory non-compliance, or even unintentional violations. This fundamental difference catches many foreign-owned businesses off-guard, particularly when they discover that their executives may be personally liable for company decisions, even without direct involvement in day-to-day operations.
Read on to discover which roles in your China-based company bear personal liability:
- Legal Representative: As the name suggests, this role holds primary responsibility. The legal representative can be held liable for any misconduct by the company, irrespective of direct involvement. This call for special awareness of all internal processes to mitigate misunderstandings due to cultural or language barriers. Many foreign-owned companies in China appoint someone outside China to manage this role, considering the severe implications such as custody and substantial fines.Read more about The Practical Meaning of A Company’s Legal Representative in China.
. - Finance Person in Charge: Two key finance roles exist in Chinese companies: the tax bureau contact and the finance person in charge. The former handles administrative tasks, while the latter assumes full responsibility for tax reporting, typically advised to be involved in financial operations to address tax bureau queries. Many companies outsource this role to accounting firms, exposing their designated accountant to personal liability risks.Read more about Financial Management & Accounting in China.
. - Social Media Accounts’ Contact Person: Surprisingly, this critical individual registered as the contact person for platforms like WeChat, Douyin, and Red to name a few, will bear legal consequences for content violations. Compliance with China’s advertising law on these platforms and local websites is crucial.
Read some Marketing Lessons from Local Brands in China.
. - Data Officer: Recent data protection legislation in China has introduced comprehensive requirements that significantly impact business operations. Under the China’s Personal Information Protection Law (PIPL) and Cybersecurity Law, data officers must ensure:
- Implementation of strict data collection and processing protocols
- Regular security assessments and updates
- Mandatory data localization for certain types of information
- Clear consent mechanisms for data collection and processing
- Specific protection measures for sensitive personal information
- Regular staff training on data protection procedures
- Immediate reporting of any data breaches to authoritiesThe complexity of this role varies based on the company’s data scope, encompassing both personal and business data. Companies must pay particular attention to cross-border data transfers, which now require specific approval processes and security assessments.
5. Honorary mention – Supervisor: Though previously pivotal, changes in China’s Company Law have altered the supervisor’s role, prompting companies to update their structures for compliance. Verification of these changes is essential.
Key Takeaway
Operating in China requires a deep understanding of personal liability implications across various business functions. To effectively manage these risks, companies should:
- Establish clear internal control systems that account for both Chinese regulatory requirements and international business standards.
- Implement comprehensive training programs to ensure all key personnel understand their legal responsibilities and potential personal liability.
- Maintain open communication channels with relevant Chinese authorities to stay updated on regulatory changes and compliance requirements.
- Regular review and update of company policies and procedures to reflect the evolving regulatory landscape.
- Consider working with local management service providers who understand both international business practices and Chinese regulatory requirements.
Contact PTL Group, offering trusted local management services in China for assistance with navigating these complexities.
PTL Group currently supports the ongoing operations and management of dozens of subsidiaries operating in China. We provide comprehensive C-level management services to international corporations with newly-founded and/or established business entities in China. With over 20 years of experience assisting global firms in establishing presence in China, and empowered by professional global and China-based teams, we have the resources to support your business endeavors in the country.
