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Employee Appointed by Company as Legal Representative Requested for Registration of Change after Dismissal
[2020-07-28]

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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