JVs and WFOEs set up after 1 January 2006 are now clearly required to have a board of supervisors. If a joint venture or WFOE has comparatively few investors and is comparatively small in scale, then the appointment of one or two supervisors is sufficient.
Although the supervisor requirements are set out in the Company Law, which was effective 1 January 2006, the provisions were not consistently applied to FIEs. As a result, some FIEs were set up after 1 January 2006 without a supervisor system. Depending on the approach of local authorities, such FIEs may be required to subsequently set up a supervision system. This issue may arise during the forthcoming annual inspections by the State Administration of Industry and Commerce.
The specifics of a supervision system, such as the selection method for the supervisor(s), the term of appointment of the supervisor(s), and the duties and powers of the supervisor(s), may be determined by an FIE in its articles of association. These provisions in the articles of association should, however, be consistent with the Company Law. Of particular note in the Company Law, is that at least one-third of a board of supervisors must represent and be democratically elected by the staff and workers.
FIEs set up before 1 January 2006 may decide whether or not to adopt a supervision system.