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[ESTABLISHING A BUSINESS ENTITY IN CHINA]
out by the board of directors and senior managers 15 . At least one third of supervisors shall be employee representatives. Alternatively, the LLC may also choose to set up an audit committee of a board of directors rather than a board of supervisors. Besides, relatively small-scale LLCs or those with a small number of shareholders may appoint a single supervisor rather than a board of supervisors. Moreover, such relatively small-scale LLCs or those with a small number of shareholders can even choose not to have any supervisor if all shareholders consent. ◼ An LLC shall have a legal representative. The legal representative is deemed as the representative of the LLC in civil activities unless otherwise communicated to third parties. However, the law does not vest executive power in the legal representative. As such, the legal representative has to carry out activities on behalf of the company within the authorized scope. The legal representative candidate is limited to either the directors or the manager of
the LLC who represents the LLC to execute corporate affairs. ◼ An LLC shall also have at least one manager that carries out the day-to-day operation of the company. The manager is appointed or removed by the board of directors and reports thereto.
b) Company Limited by Shares (“ CLS ”) A CLS in China is similar to a corporation in many other jurisdictions. Unlike an LLC where the ownership of the shareholders is represented by subscribed capital, the shareholders of a CLS subscribe for shares. Investors tend to choose the CLS where the company is on a larger scale. In general, it is more burdensome to operate a CLS than an LLC, as the law sets higher requirements for CLSs with respect to corporate governance, standardized operation, and many other aspects. - Limited liability The shareholders’ liability is limited to the aggregate subscription price of their subscribed shares. - Capital
Like an LLC, a CLS will also have a registered capital and a total investment amount although the requirements differ in detail. Governance ◼ The shareholders’ general
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15 When referring to the board of directors, the sole director is also included, as the case may be.
ILN Corporate Group – Establishing a Business Entity Series
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