Responsibilities and Rights of Directors and Shareholders in Chinese Companies

According to the company law in China, directors are elected from the shareholders’ meeting. Besides, in the listed companies, the independent directors are allowed to exist. Independent directors shall be independent from the listed company that employs them and the company's major shareholders. An independent director may not hold any other position in the listed company. But in the non-public companies, the independent directors are forbidden in China. At first, we talk about the responsibilities and rights of normal directors in Chinese companies.1) The responsibilities and duties of directors. In the “Code of Corporate Governance for Listed Companies in China”, the responsibilities and duties of directors are shown as following:

1. Directors should do their best to perform their duties for the whole company and the shareholders’ interests. Therefore, they also should guarantee enough time and energy for their duties.
2. Directors should attend the meetings of the board of directors, and express opinions responsibly and diligently. And when they are unable to attend the meeting, the director may give the authorization to another director to vote, but the director who makes authorization should be responsible for the vote.
3. Directors should strictly comply with relevant laws, regulations, articles and rules.
4. Directors should improve their skills and be familiar with relevant laws, regulations, articles and rules by attending relevant trainings.
5. If the resolutions of board of directors violate relevant laws, regulations, articles and rules and result in big losses to the company, directors who are responsible for making such resolutions should be liable for compensation, except those who are proved to be objective.

The rights of directors

According to the Company Law, some articles illustrate the directors’ rights as follow:

1. The right of attending the meeting of the board of the directors the directors have the right to attend the meetings of the board of directors to discuss the solutions of the some problems for managing the company.
2. The voting right in the meeting of the board of directors When the directors discussing some problems in the meetings of the board of the directors, every director can be entitled one vote.
3. The right of convening and presiding over an interim meeting of the board of directors According to the Company Law, in the Article 110 ” Shareholders representing more than one tenth of the voting rights, more than one third of all directors, or the board of supervisors may propose to convene an interim meeting of the board of directors. The chairman of the board of directors has the right to convene and preside over an interim meeting of the board of directors within ten days upon receipt of the proposal.”
4. The right of receiving liability insurance After approval by the shareholders' meeting, a listed company may purchase liability insurance for directors. But such insurance don’t cover the liabilities because of the directors' violation of laws, regulations or the company's articles of association.
5. The right of managing and being informed Directors have the right to manage the company, and should be informed of the situation of the companies’ operation and get the needed materials before the meeting that they should attend.

The responsibilities and duties of independent directors

As the “Code of Corporate Governance for Listed Companies in China” said, the independent directors not only should be responsible to the company and shareholders, but also should do their duties according to the relevant laws, regulations and the company's articles of association. Besides, they also should protect the interests of the company and shareholders, especially the minority shareholders. In addition, Independent directors shouldn’t “subject themselves to the influence of the company's major shareholders, actual controllers, or other entities or persons who are interested parties of the listed company”

The rights of independent directors

Except managing the companies, the independent directors have almost the same rights with other directors. But they have another special right, namely hiring the external auditing and consulting institutions independently.

Rights of shareholders

According to the “Code of Corporate Governance for Listed Companies in China” and the “Company Law of the People's Republic of China (2014)”, as the owner of a company, the shareholders “can enjoy the legal rights stipulated by laws, administrative regulations and the company's articles of association. And the listed company should establish a corporate governance structure sufficient for ensuring the full exercise of shareholders' rights.” And the rights can be divided into self-benefit rights and co-benefit rights as following:

1. The right of formulating the company's articles of association--Co-benefit rights When the shareholders or actual controler establish a limited liability company, the shareholders have the right of jointly formulating the company's articles of association.
2. The right of participating in major things and being informed--Co-benefit rights Shareholders have the rights to participate in major meetings, like the shareholders’ meeting , and also have the right of being informed of the companies’ major things.
3. The rights of voting--Co-benefit rightsIn the shareholders’ meeting, the shareholders can exercise their voting rights to make decision on some major things based on their perspective shares.
4. The right of inspecting--Co-benefit rights According to the company law, the Article 33 says, “The shareholders of a company shall be entitled to inspect and duplicate the company's articles of association, the minutes of the shareholders' meetings, the resolutions of the board of directors, the resolutions of the board of supervisors, and the financial and accounting reports of the company. The shareholders may request to inspect the accounting books of the company.”
5. The preemptive rights--Self-benefit rights“ With respect to any equity to be transferred with the consent of the shareholders, those shareholders other than the transferring party shall have the preemptive right under the same conditions. Where two or more shareholders claim to exercise their preemptive right, they shall determine the proportional ratio for purchase through consultation. Where the consultation fails, the preemptive right shall be exercised in proportion to their respective capital contribution at the time of the transfer. “(Article 71, Company Law)
6. The right of being treated equally--Self-benefit rights As the Code of Corporate Governance for Listed Companies in China says, the company should treat every shareholders equally, especially minority shareholders.
7. The right of protecting their legal interests--Self-benefit rights The shareholders have rights to request the distribution of a dividend and residual assets. If the resolutions of shareholders' meetings or the resolutions of the board of directors are in breach of laws and administrative regulations or infringe on shareholders legal interests and rights, based on the Code, “the shareholders shall have the right to initiate litigation to stop such breach or infringement and have the right to request the company to sue in accordance with law” and even can dismiss the chairman. In addition, once the company start its liquidation process, according to the Article 186 in Company Law, “after paying off the liquidation expenses, the salaries, social insurance premiums and the statutory compensations of the staff members, the due and payable taxes and the debts of the company, the liquidation group shall distribute the remaining property, in the case of a limited liability company, in proportion to the shareholders' capital contribution or, in the case of a company limited by shares, in proportion to the shares held by each shareholder.”