Director or senior manager of a China company? Why it is better to agree supplementary contractual provisions now!

Why is it advisable to make the legal relationship between a board member (director) / senior manager and the China company more legally secure in the future, e.g., in an additional contract?

As a rule, the provisions in current articles of association often only contain the old wording of the law. Management by-laws often only contain the allocation of competences between the various company bodies and definitions of matters requiring approval.

However, from 1 July 2024, members of the board of directors and senior managers of a company in China will be subject to extensive obligations, most of which are only very general in the new law. In order to increase legal certainty for both sides and reduce the risk of disputes, a more detailed contractual arrangement can be made, e.g. in a "director's contract" or in an addendum to the manager's employment contract.

Furthermore, under the new law, board members are entitled to compensation in the event of premature dismissal without "good cause". As a rule, the period of appointment regulated in the articles of association is three years. Separate compensation is not normally provided for. The new law contains neither a regulation as to what constitutes good cause nor how compensation would be determined (if applicable). Here too, it is advisable to define grounds for dismissal, for example in the articles of association. In addition, a "director's contract" can also regulate the individual particularities or conditions under which a director can be appointed and, if necessary, dismissed before the end of the appointment period without compensation.

The following might be regulated in a director's contract or the contract with a senior manager: