Meaning
Statutory provisions in the corporate code of the People’s Republic of China govern the personal liability of directors, supervisors, and senior executives when their actions cause harm to third parties. Under article 238 company law, corporate officers face joint and several liability if they act with intent or gross negligence in the execution of their corporate duties. This shifts legal exposure from the corporate entity directly to the individual, creating a severe personal risk for foreign nationals sitting on the boards of Chinese subsidiaries.
It represents a departure from traditional limited liability protections.
Fiduciary Accountability
Executives must execute their duties with due care to avoid triggering personal financial risk. The application of article 238 company law depends on the distinction between ordinary mistakes and gross negligence, a standard interpreted strictly by local people’s courts. Corporate minutes must record dissenting votes to protect board members from collective liability during disputed transactions.
Corporate Restructuring
Board compositions in multinational subsidiaries must adjust to this personal exposure. Many companies choose to appoint local legal representatives who hold the primary administrative authority, thereby isolating international executives from direct personal litigation under article 238 company law. This strategic realignment alters the chain of command and shifts the risk to personnel stationed permanently in China.
Administrative Penalty
Enforcement of these liabilities often proceeds through civil litigation or direct regulatory intervention by the State Administration for Market Regulation. When a company fails to comply with liquidation obligations or environmental mandates, article 238 company law provides the statutory mechanism for creditors to pierce the corporate veil and claim damages from personal assets. This mechanism enforces administrative discipline across the domestic corporate landscape.
