Duties of Board of Supervisors of a limited liability company in China.
By Sun Jin (Marlow), Partner, Chinese attorney at law, of Zhejiang Xinmu Law Firm @ April. 30, 2010
The supervisors did not exist in the very beginning. In modern companies where ownership and management/controlling rights are separated, the shareholders who enjoy the ownership benefits cannot always take part in the daily management of Companies, and would have to entrust the standing board of directors to manage and control the company. In this situation, the directors¡¯ power will be too much. In common sense, ¡°Power tends to corrupt; absolute power corrupts absolutely¡±. So to prevent the directors to abuse their powers and put their own benefits above the benefits of the Company, the Supervisors come into being, who are appointed to supervises and monitor the policy-makers of the directors (and the managers they hire).
A limited liability company, which has relatively less shareholders or is relatively small in scale, may have 1 or 2 supervisors, and does not have to establish a board of supervisors.
Duties of the board of supervisors:
1. The board of supervisors is the standing organ that carries on supervising operation of a company, and mainly supervises the business actions of high managements like chairman of board of directors, managing director, board of directors and general manager, and is responsible to meeting of shareholders, and shall report work to the meeting of shareholders (or the shareholder).
2. The board of supervisors exercises following duties:
a. Be entitled to know about company¡¯s policies and operation situations; be entitled to check company¡¯s financial and accounting books and documents, and requesting directors and related staff of the company to provide related documents(i.e. checking the financial affairs of the company);
b. supervising the duty-related acts of the directors and senior managers, and bringing forward proposals on the removal of any director or senior manager who violates any law, administrative regulation, the articles of association or any resolution of the shareholders' meeting;
c. demanding any director or senior manager to make rectifications if his act has injured the interests of the company;
d. proposing to convening temporary shareholders' meeting, and convening and presiding over shareholders' meeting when the board of directors does not exercise the functions of convening and presiding over the shareholders' meeting as prescribed in this Law;
e. bringing forward proposals at shareholders' meeting;
f. initiating actions against directors or senior managers according to Article 152 of PRC Company Law; and
g. other duties as prescribed by the articles of association.
Generally speaking, board of supervisors can not exercise the operation/business actions of board of directors, and can not act for and on behalf of company with parties outside of the company, and are not entitled to interfere the normal operation/business actions of board of directors or general manager. And among the above duties, we think two of them are key ones: one is checking company¡¯s financial and accounting books and documents, another one is demanding any director or senior manager to make rectifications if his act has injured the interests of the company.
Article 52 A limited liability company may set up a board of supervisors, which shall comprise at least 3 persons. A limited liability company, which has relatively less shareholders or is relatively small in scale, may have 1 or 2 supervisors, and does not have to establish a board of supervisors. The board of supervisors shall include representatives of shareholders and representatives of the employees of the company at an appropriate ratio which shall be specifically stimulated in the articles of association.
The employees' representatives, who are to serve as members of the board of supervisors, shall be democratically elected by the employees of the company through the assembly of the employees' representatives or the assembly of employees, or by any other means. The board of supervisors shall have one chairman, who shall be elected by half or more of all the supervisors. The chairman of the board of supervisors shall convene and preside over the meetings of the board of supervisors. If the chairman of the board of supervisors is unable to or does not perform his duties, the supervisor recommended by half or more of the supervisors shall convene and preside over the meetings of the board of supervisors.
No director or senior manager may concurrently work as a supervisor.
Article 53 Every term of office of the supervisors shall be 3 years. The supervisors may, after the expiry of their term of office, hold a consecutive term upon re-election. If no reelection is timely carried out after the expiry of the term of office of the supervisors, or the number of the members of the board of directors is less than the quorum due to the resignation of some directors from the board of supervisors prior to the expiry of their term of office, the original supervisors shall, before the newly elected supervisors assume their posts, exercise the authorities of the supervisors according to laws, administrative regulations as well as the articles of association.
Article 54 The board of supervisors or supervisor of a company with no board of supervisors may exercise the following authorities:
Article 55 The supervisors may attend the meetings of the board of directors as non-voting delegates, and may raise questions or suggestions on the matters to be decided by the board of directors.
Article 56 The board of supervisors shall hold meetings at least once a year. The supervisors may propose to hold temporary meetings of the board of supervisors.
Article 57 The expenses necessary for the board of supervisors or the supervisor of a company with no board of supervisors to perform its (his) duties shall be borne by the company.