WRITTEN  BY JACKIE WU

A supervisor is a compulsory position required by the Company Law in China. As the limited liability company is the most popular type for foreign investment enterprises, this article will focus on a supervisor’s role in a limited liability company.

1. Number and Composition of Supervisor:

Every company in China must have one to two supervisors/a board of supervisors (no less than three members). The board of supervisors shall appoint a chairman.

Relevant laws:

Article 51 of the Company Law，The board of supervisors of a limited liability company shall comprise not less than three members. Limited liability companies with relatively fewer shareholders or of a relatively smaller scale may appoint one to two supervisors instead of establishing a board of supervisors.  

The board of supervisors shall include shareholders’ representatives and an appropriate number of employees’ representatives; the ratio of employees’ representative therein shall not be less than one-third and such ratio shall be stipulated by the articles of association of the company. Employees’ representatives sitting on the board of supervisors shall be appointed by company employees via an employees’ representative congress or employees’ congress or other forms of democratic election.

The board of supervisors shall appoint a chairman; the chairman shall be elected by more than half of the board of supervisors. The chairman of the board of supervisors shall convene and chair meetings of the board of supervisors; where the chairman of the board of supervisors is unable or fails to perform his/her duties, a supervisor appointed by more than half of the board of supervisors shall convene and chair the meeting(s) of the board of supervisors.

2. Term of appointment of Supervisor:

The term of appointment of a supervisor shall be three years. Upon expiry of the term of appointment, a supervisor may be re-elected. 

Relevant laws:

Article 52 of the Company Law，The term of appointment of a supervisor shall be three years. Upon expiry of the term of appointment, a supervisor may be re-elected.   

Where no new appointment is made upon expiry of the term of appointment of a supervisor or a supervisor resigns during his/her term of appointment and causes the number of supervisors that constitutes the board of supervisors to fall below the quorum, the original supervisor shall, prior to the new supervisor taking office, continue to perform his/her duties as a supervisor in accordance with the provisions of laws and administrative regulations and the articles of association of the company.

3. Duties and Powers of Supervisor:

A board of supervisors or a supervisor shall exercise the following duties and powers in accordance with Company Law and others stipulated in the articles of association of the company.

Relevant laws:

Article 53 of the Company Law，A board of supervisors or a supervisor (in the case of companies which have not established a board of supervisors) shall exercise the following duties and powers:   

(1) inspect the company finances;

(2) supervise the performance of duties by directors and senior management personnel and propose to remove a director or senior management personnel who violates the provision of the laws and administrative regulations and the articles of association of the company or the resolutions of the board of shareholders;

(3) require a director or senior management personnel who acts against the interests of the company to make correction;

(4) propose to convene ad hoc shareholders’ meeting, convene and chair a shareholders’ meeting when the board of directors fails to convene and chair a shareholders’ meeting in accordance with the provisions of this Law;

(5) make proposals at shareholders’ meetings;

(6) file a lawsuit against a director or senior management personnel in accordance with the provisions of Article 151 hereof; and

(7) other duties and powers stipulated in the articles of association of the company.

Article 54 of the Company Law，Supervisors may attend meetings of the board of directors and query resolutions of the board of directors or give suggestions.   

A board of supervisors or a supervisor (in the case of companies which have not established a board of supervisors) may conduct investigation upon discovering irregularities in the business operations and may appoint an accounting firm etc. to assist in the investigation if necessary; such expenses shall be borne by the company.

4. Meeting of The board of Supervisors:

The board of supervisors shall convene at least one meeting every year; a supervisor may propose to convene an ad hoc meeting of the board of supervisors. 

Relevant laws:

Article 55 of the Company Law，The board of supervisors shall convene at least one meeting every year; a supervisor may propose to convene an ad hoc meeting of the board of supervisors.   

The rule of procedures and voting procedures of a board of supervisors shall be stipulated by the articles of association of the company, unless otherwise provided in this Law.

Resolutions of a board of supervisors shall be passed by a simple majority of votes.

The board of supervisors shall record minutes of meeting and the supervisors present at the meeting shall sign on the minutes of meeting.

5. Qualifications and Obligations of Supervisor:

Not any person can act as a supervisor. Directors and senior management personnel shall not hold the post of supervisor concurrently.

The following persons shall not act as a director, supervisor or senior management personnel.

Relevant laws:

Article 51 of the Company Law，Directors and senior management personnel shall not hold the post of supervisor concurrently.

Article 146 of the Company Law，The following persons shall not act as a director, supervisor or senior management personnel:   

(1) a person who has no civil capacity or who has limited civil capacity;

(2) a person who has been convicted for corruption, bribery, conversion of property or disruption of the order of socialist market economy and a five-year period has not lapsed since expiry of the execution period or a person who has been stripped of political rights for being convicted of a crime and a five-year period has not lapsed since expiry of the execution period;

(3) a person who acted as a director, factory manager, manager in a company which has been declared bankrupt or liquidated and who is personally accountable for the bankruptcy or liquidation of the company; and a three-year period has not lapsed since the completion of bankruptcy or liquidation of such company;

(4) a person who has acted as a legal representative of a company which has its business license revoked or being ordered to close down for a breach of law and who is personally accountable, and a three-year period has not lapsed since the revocation of the business license of such company; and

(5) a person who is unable to repay a relatively large amount of personal debts.

Where the election or appointment of a director, supervisor or senior management personnel is in violation of the aforesaid provisions, such election or appointment shall be void.

In the event of the circumstances stipulated in (1) above during the term of appointment of a director, supervisor or senior management personnel, the company shall remove the director, supervisor or senior management personnel. Election or appointment of a director, supervisor or senior management staff which violates the aforesaid provisions shall be void. A director, supervisor or senior management staff who encounters the circumstance set out in (1) above shall be terminated by the company.

6. Derivative Actions/Lawsuits:

Derivative actions are regarded as an enhancement of corporate governance in terms of protecting shareholders from the misbehaving management of their invested company, and protecting small shareholder from being repressed by controlling shareholders. Article of 151 of China Company Law provides for the guidelines of derivative action or lawsuit by supervisor under the request of the Shareholder who meets the certain requirement.  

Relevant laws:

Article 149 of the Company Law，A director, supervisor or senior management personnel who violates the provisions of laws and administrative regulations or the articles of association of the company in his/her performance of duties and powers and causing the company to suffer damages shall bear compensation liability.

Article 151 of the Company Law，In the event of circumstances stipulated in Article 149 hereof involving a director or senior management personnel, a shareholder or a group of shareholders of a limited liability company or a company limited by shares holding 1% or more of shares in the company for 180 days consecutively may submit a request in writing to the board of supervisors or the supervisor (in the case of a limited liability company which has not established a board of supervisors) to file a lawsuit with a people’s court; Under any of the circumstances stipulated in Article 149 hereof involving a supervisor, the aforesaid shareholder(s) may submit a request in writing to the board of directors or the executive director (in the case of a limited liability company which have not established a board of directors) to file a lawsuit with a people’s court.   

Where the board of supervisors or the supervisor (in the case of a limited liability company which has not established a board of supervisors) or the board of directors or the executive director refuses to file a lawsuit pursuant to the written request of the shareholder(s) or fails to file a lawsuit within 30 days from receipt of the request or where the circumstances are urgent and the company will suffer irrecoverable losses if a lawsuit is not filed forthwith, the aforesaid shareholder(s) shall have the right to file a lawsuit with a people’s court directly in their own name to protect the interests of the company.

In the event of an infringement of the legal interests of the company by others which causes the company to suffer damages, shareholders mentioned in the first paragraph of this article may file a lawsuit with a people’s court in accordance with the provisions of the aforesaid paragraphs.

Should you find that you have any questions on any of the contents set forth, or for further information or enquiries, please feel free to contact: wujin@winteam500.com.

Updated 2017.01