Court: Agency Contract Lacks Basis of Existence after
Termination of Labor Relations and Shall Be Invalidated According to Law
[Case Review]
Ms. Lu was a former employee of Company A, which
set up a wholly-owned subsidiary, Facaishu, in 2015. To facilitate management,
it appointed employee Ms. Lu as the nominal legal representative of Facaishu.
In 2016, Company A issued a Notice of Dismissal to Ms. Lu due to poor
management and debt burden, and two sides terminated their labor relations.
Then, Ms. Lu asked Facaishu to register the change in legal representative, but
was ignored.
Ms. Lu sued to the Qingpu District People's Court of Shanghai (hereinafter
referred to as the "Shanghai Qingpu Court"), requesting Facaishu to
deal with the registration of change in legal representative.
Ms. Lu believed that she was entrusted by Company A as the nominal legal
representative of Facaishu, but had never kept the licenses nor participated in
the actual operation of the company. As she has left Company A and the basis
for such entrustment has been lost, Facaishu should deal with the registration
of change in the legal representative.
Facaishu admitted that Ms. Lu was appointed by Company A as its legal
representative and had never expanded business in her personal name during that
period. Besides, she had returned relevant licenses to Facaishu when leaving Company
A. However, Facaishu can't find suitable substitute now and can't deal with the
industrial and commercial registration of changes.
[Case Study]
After the trial, the Shanghai Qingpu Court held that Ms. Lu had been
working in Company A and was appointed by Company A as the legal representative
of Facaishu. She didn't actually participate in the management of Facaishu and
was just a nominal legal representative. As the labor relationship between Ms.
Lu and Company A has been terminated, the basis for existence of the
entrustment contract is lost. When leaving, Ms. Lu has returned relevant
licenses, seals and other materials to Facaishu. Ms. Lu, not a shareholder of
Facaishu, can't make a resolution on changing the legal representative by
holding shareholders' meeting or other remedies, while Company A and Facaishu
had never made the intention to change the legal representative.
To protect the legitimate rights and interests of Ms. Lu as an average
citizen, the court supported Ms. Lu's claim that Facaishu should eliminate her
registration of legal representative with relevant department.
Legal representative is a person in charge who conducts civil activities on
behalf of the legal person according to law. Whether in
commercial activities or litigations, he/she is the representative of the legal
person. In view of the importance of legal representative, the Company Law of the People's Republic of
China requires the legal representative to be clearly recorded in the
articles of association and registered by the industrial and commercial
registration department.
However, if a citizen is appointed by the company's major shareholder or
actual controller as the nominal legal representative, who is not a
shareholder, doesn't participate in the operation and management, and has no
remuneration and the right to make decision, he/she may, according to specific
circumstances, eliminate the registration of the legal representative according
to law to protect him/her from unnecessary commercial risks or legal
responsibilities.
(All names of persons are pseudonyms)
[Relevant Laws]
I. General Principles of the Civil Law of the People's
Republic of China
Article 61 In accordance with the provisions of laws or the bylaws of a
legal person, the person in charge who conducts civil activities on behalf of
the legal person shall be the legal representative of the legal person.
...
II. Company Law of the People's Republic of China
Article 13 The legal representative of a company shall, pursuant to the
company's articles of association, be assumed by the chairman of the board of
directors, an executive director or a manager, and shall be registered in
accordance with the law. Change of the legal representative of the company
shall be subject to the formalities for change of
registration.
III. Contract Law of the People's Republic of China
Article 410 Either the principal or the agent may terminate the agency
appointment contract at any time. Where the other party sustains any loss due
to termination of the contract, the terminating party shall indemnify the other
party, unless such loss is due to a reason not attributable to the terminating
party.
(Writers: Wang Mingming and Cui Binyu of Shanghai Qingpu
Court)
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