When registering a wholly foreign-owned enterprise (WFOE) in the mainland of China (China), there are specific governance roles you’ll need to fill. As defined under the Company Law of the People’s Republic of China (Company Law) and the Foreign Investment Law, these positions determine how authority, accountability and liability are distributed within your company.
The Company Law was last amended in December 2023, with the latest version taking effect on 1 July 2024. It tightened shareholder and director responsibilities, collectively raising the governance standards expected of Chinese companies, including WFOEs. We will explain the important roles and responsibilities of a WFOE in the sections below.
Key roles in a WFOE governance structure
- Legal representative: statutory face of the company
- Shareholder: ultimate authority
- Board of directors: strategic oversight
- Manager: daily operations
- Supervisor or audit committee: oversight and compliance
- Financial responsible person: mandatory finance officer
Legal representative
Except for partnerships, every business established in China is required to appoint a legal representative.
What is a legal representative in China?
This individual will represent your WFOE and act on its behalf, exercising duties and powers in accordance with the law and the articles of association. It is important to note the legal representative should have a personal seal that serves as a formal signature. Their name will also be recorded on your company’s business licence.
Bear in mind too that the individual can be held accountable for any action conducted by the China entity. The legal representative is therefore the most significant role among the key positions of a WFOE.
Requirements for appointment
In accordance with the new Company Law, your choice of legal representative should either be a director or manager who executes company affairs. Should the role become vacant due to resignation, a replacement must be appointed within 30 days to maintain compliance.
Bear in mind your company can be held accountable for any civil activities carried out by your legal representative when acting on its behalf. The legal representative should thus be chosen carefully as their occupational actions are also considered to be the actions of the company.
Authorised signatory role in China WFOEs
The legal representative of your WFOE and the authorised signatory can be the same person. The authorised signatory is the person who has the signing authority to make decisions on behalf of the shareholder. This individual can be appointed by the board of directors of the shareholder and is responsible for authorising documents related to your WFOE such as the setup and change of structure.
Shareholder
Under China’s new Company Law, the responsibilities of a shareholder have also become more clearly defined and more closely tied to corporate accountability. Shareholders are now required to fully pay their subscribed capital contribution within the first five years of the company’s establishment.
For your WFOE in China, you will need at least one shareholder, who can be either an individual or a corporate entity. You may have up to 50 shareholders, and their liability will be limited to their capital contributions.
What powers do shareholders have?
Shareholders represent the highest level of authority in the company. They approve the articles of association and decide the key positions which need to be appointed in the company.
The articles of association form the core governance document of your WFOE. They outline capital contribution schedules, board structure, voting mechanisms, and procedures for shareholder meetings and profit distributions.
The shareholder is typically empowered to decide on the business and investment plans of the company; to appoint director(s) and supervisor(s); to review and approve the company’s annual financial budget and accounts, the profit distribution plans (or plans for making up losses); and to decide on any capital increase or decrease, mergers, divisions or dissolutions of the company.
Shareholder eligibility in China
Both individuals and corporate entities may hold shares in a company established in China, unless the business operates in a restricted or prohibited industry under the Special Administrative Measures (Negative List) for Foreign Investment Access.
Board of directors
The board of directors will play an important role in developing and setting the agenda of your company’s operations according to the shareholders’ decisions.
Key responsibilities include formulating business plans and investment proposals, preparing profit distribution and loss recovery plans as well as proposing capital adjustments or structural changes such as mergers or divisions. Directors are also responsible for attending board meetings, appointing, or dismissing the company’s manager and establishing internal management rules.
Board structure rules
Your board of directors should have at least three directors. The new Company Law has further lifted the earlier cap on how many directors a company can have.
For smaller WFOEs, it is permissible to appoint a director in place of a full board, provided this is stated in the articles of association. Director appointments are valid for a three-year term, after which shareholders must elect successors or reappoint the board.
During their term, directors are expected to perform their duty of diligence as breaches can result in personal liability under the China's Company Law.
Manager
The manager will be responsible for managing the day-to-day operations of your China entity. This position will need to be registered at the State Administration for Market Regulation (SAMR) when you incorporate your WFOE.
Supervisor or audit committee
A supervisor (or a board of supervisors) will need to be appointed to oversee how your company’s duties are conducted and to maintain compliance with applicable rules and regulations. This individual is accountable for monitoring the actions of the directors and senior executives.
If any of their actions cause harm to the company, the supervisor must take steps to rectify the situation. Should there be any violation of laws, administrative regulations or articles of association that could result in losses, the supervisor has the authority to start an investigation.
Take note that under the new Company Law, you may establish an audit committee under the board of directors to assume the functions and powers of the supervisory board (or supervisor). You will not need a separate supervisor or board of supervisors if you are setting up an audit committee.
For smaller WFOEs, it is possible to do away with supervisors or board of supervisors altogether, provided all shareholders give unanimous consent.
Restriction
To ensure there is no conflict of interest, a supervisor cannot concurrently hold any other legal roles within the company.
Liabilities and restrictions
Under the new Company Law, the actions of a company’s key personnel can carry legal implications that may extend to personal liability. Individuals who act beyond their authority, neglect their duties, or violate laws and the company’s articles of association can face legal consequences.
For example, a legal representative’s actions are regarded as those of the company, meaning any misconduct can expose both the company and the individual to penalties. Directors are expected to exercise their duty of loyalty and diligence, and failure to do so may result in liability for company losses. Similarly, shareholders who fail to fulfil their capital contribution obligations can also be held personally accountable.
The law further prohibits those who have been blacklisted under China’s Corporate Social Credit System (CSCS), or who have committed serious financial or legal offences, from serving as directors, supervisors, and senior executives. To mitigate these risks in your WFOE, it is recommended to have trusted and experienced individuals to take up these positions.
Other operational positions (non-governance roles)
There are also other essential roles to be defined when registering your WFOE in China. These do not bear the same responsibility as the mandatory positions mentioned above. Even so, they must be considered and selected carefully:
| Other roles in a WFOE | Function |
|---|---|
| Financial responsible person | Commonly required by local tax authorities and banks, this is a role that generally cannot be held by your legal representative ordirector. It can be your own in-house finance manager or handled by a trusted corporate services provider. |
| Contact person for the SAMR | Mainly responsible for the communication between the company and the SAMR authority. |
| Bank operator | Usually the designated accountant of the company. Responsible for inputting banking payment online. |
| Bank manager | Responsible for the approval of e-banking payment. This person cannot be the same person as the bank operator. |
| Customs operator | Individual registered at the customs authority for any matters related to import/export, custom declaration and payment. The legal representative can hold this position. |
| Tax operator | Designated accountant registered with the tax bureau. |
| Branch responsible person | Main contact for the bank and tax authorities in the location where the branch is registered. |
Highly recommended practices for foreign investors setting up a WFOE in China
Importantly, you want to start with a corporate structure that not only meets regulatory expectations but also supports your business’ long-term management and credibility. As you establish and grow your WFOE in China, keep in mind to:
- Choose your key personnel thoughtfully, making sure they understand and can assume the responsibility.
- Maintain full compliance as regulatory breaches can affect both corporate reputation and the ability of key personnel to operate in China.
- Prepare for practicalities such as the bank account setup, tax registration, and customs procedures. These may require an in-person presence and a local mobile number.
How we can help
For fulfilling the positions, our team at Hawksford is qualified to serve the role of a nominee director, supervisor, Financial Responsible Person as well as the authorised SAMR contact. With more than a decade of experience supporting clients across different sectors, we continue to be a trusted partner to international businesses establishing and expanding in China.
Located in Beijing, Changshu, Guangzhou, Shanghai and Shenzhen, we can provide the local insight and execution capability to perform the roles and responsibilities you require. Please get in touch to explore how we can support your WFOE operations in China.
FAQs on mandatory positions in a China WFOE
Are there any nationality or residency requirements for key positions in a WFOE?
In most cases, China’s new Company Law does not specify nationality or residency requirements for the key positions in a WFOE. Both individuals and corporate entities from overseas may act as shareholders, directors, supervisors or the legal representative.
What is the difference between shareholders, directors, supervisors and the legal representative?
Each corporate position bears specific responsibilities that contribute to the effective management of the WFOE. Shareholders hold the ultimate authority over major decisions such as appointing directors and supervisors.
Directors, or the board of directors, then oversee management and operations, ensuring that shareholder resolutions are implemented and the business runs in line with Chinese regulations and the company’s articles of association. Meanwhile, the supervisor helps with monitoring the conduct of directors and managers to prevent misconduct or mismanagement.
The legal representative is legally empowered to act on behalf of the company.
And together, these roles make up the governance structure required of China WFOEs.
Can one person hold multiple roles in a WFOE (e.g., legal representative, director, manager)?
Yes. An individual may act as the legal representative, director and manager, provided the appointments are recorded properly in your company’s articles of association and approved by your shareholders.
The supervisor’s role, however, must remain independent. They cannot serve as a director or manager because their purpose is to provide oversight. Larger or more mature entities typically separate these key positions to manage internal controls and accountability.
What are the common challenges foreign investors face in appointing key roles?
A major consideration is selecting your legal representative, who holds the authority to act on behalf of your company in China. Because this individual can be held personally liable for regulatory breaches, the role requires careful selection.
We also see clients face challenges around the director role. If you are not based in China, it can be tricky to find someone locally who can act in this capacity. We can help you close that gap through our nominee director services. Our experienced professionals can act as your local director to comply with Chinese corporate governance requirements while following your internal policies and instructions.
All supporting documents must also be accurately translated into Chinese. For these matters, you can reach out to us to assist in the document preparation and submission.
Need support?
Hawksford can provide corporate governance and nominee services for your company.
