Due Diligence
March 2014

Why the 'Legal Representative' Isn’t the Person You Want to Speak To

We’ve previously written about how to find out the name of the legal representative of a Chinese company via their business license. In that article, we briefly covered what a legal representative actually is:

“There’s a good chance that this person 
 be someone with much real authority in the management of the company. … It could be a mistake to demand contact with the legal representative or to require their participation in your communications with the company. In many cases this person’s role as legal representative is not immediately relevant to the management of the company and it’s perfectly legitimate that they do not participate directly in your business relationship.”

We’ve noticed that some other company verification providers claim in their reports that anyone who isn’t the legal representative “is not authorised to represent” the company in question. This statement is highly misleading. It is in fact the norm that you will not deal with the legal representative of a Chinese company.

Demanding proof that you’re communicating with the legal representative of a company is akin to demanding to speak to the CEO, founder or owner of the company. By the nature of the role, there is only one in the whole company and chances are that they are not on the sales or marketing team. Also note that ‘legal representative’ will not be this person’s job title. It is a legal responsibility that they shoulder, but probably does not impact their day-to-day duties.

So whilst it’s true that someone other than the legal representative cannot undertake highly formal legal responsibilities for the company, other employees may very much be authorised by the company to represent it in business. If someone is in sales, representing the company is the main function of their job.

The issue here isn’t that the term ‘legal representative’ is confusing in itself. The real source of confusion is that apart from the legal representative, a standard Chinese business license doesn’t give any other names of real people. A major motivation to verify a Chinese company via their official registration is to confirm that you’re actually dealing with someone you can trust. People want to get hold of an officially recorded name of a real person, so they focus on the legal representative.

Verifying the company by their official registration record confirms that they are a real company that exists, as well as a range of revealing details about them. However, it’s much harder to prove that you are genuinely in contact with this company, or that the particular person you’re communicating with is trustworthy.

Because of this, we frequently get requests from clients who wish to confirm that a particular person does actually work for the company they are interested in. In these cases, we can verify that the company in question is officially registered, and take a close look at their registration details to see what insight can be gained from those.

Confirming with total certainty that a client is genuinely in contact with that company or that a particular individual works at that company is impossible, though. One of our main principles in researching companies is that we do not contact the company being researched, in order to stay totally impartial and independent (we also do this to be discrete and avoid revealing to the company that we’re doing research on them). This rules out contacting the company directly to ask about the names of their employees. They could legitimately refuse to give this information out anyway.

Alternatives to the Legal Representative for a Verified Name

Whilst the business license and AIC records of a Chinese company will only reveal the name of the legal representative, it is possible to get hold of other names through more involved research. The names of shareholders and the board of directors can nearly always be acquired by sending a lawyer to the relevant AIC to collect the records in hard-copy.

Again, it may be unreasonable to demand that all communication comes from a shareholder or director. Further  approaches to reassure yourself in these circumstances are:

  • Ask the company for references from previous clients. If the references are somewhat well-known and/or based in other countries, this can be quite hard to fake (although not impossible). It may also be possible to confirm with the reference that they dealt with this particular representative whilst doing business with the company.
  • Never make payments to personal bank accounts. A rogue employee or scammer would likely request payment to a personal bank account that they own. Ensure that you’re paying a business bank account, and check the company’s bank account license if possible.
  • Make physical visits to the company. This should be a step in any sourcing process, and will go a long way to confirming the authenticity of the company. Just make sure you avoid these common mistakes.
  • Send inspectors and auditors to the company. If it’s impractical for you or your staff to visit the company, it is wise to at least arrange for inspectors and auditors to handle this for you.

As you can see, there is no silver bullet for verifying a Chinese company or the person you’re communicating with. Background research is only one part of the process: verification, referencing, audits and inspections all play their part in doing business safely in China.

(If you’re new to China sourcing, it may be worthwhile to make yourself aware of the basics: read about sourcing safely and common warning signs.)

Verify a China Company.

✔ Order online today & get peace of mind

Further reading