Answer: Whether the boss of the company should compensate, with their personal assets as unlimited liability, employees’ wages, economic compensation, and other employment entitlements (hereafter refer to employment debts or employment claim) firstly depends on the types of different employers. Compared with the insolvency distribution, the boss’s personal liability for compensation is often a more effective way for employees to recover their employment claims.
The owner of a partnership enterprise shall generally bear personal liability for the employment debts to its employees. The partners of a general partnership and the general partners of a limited partnership shall bear unlimited joint and several liability for the debts of the enterprise, including employment debts. That is to say, employees can ask all or any of these partners to compensate their employment claims with their personal assets, without considering the distribution of liabilities among partners. Moreover, even if a partner withdraws from the partnership, if the employment debt occurs during their tenure as a partner, the partner is still liable for compensation. The only exception is limited partners in a limited partnership.[Article 2 of the Partnership Enterprise Law, ¡°The term “partnership enterprise” as mentioned in this Law refers to a general partnership enterprise or a limited partnership enterprise established within the territory of China by a natural person, legal person or other organization in accordance with this Law. A general partnership consists of general partners, who bear unlimited joint and several liability for the debts of the partnership. Where there are special provisions on the form of liability of general partners in this Law, such provisions shall prevail. A limited partnership consists of a general partner and a limited partner. The general partner is jointly and severally liable for the debts of the partnership, and the limited partner is liable for the debts of the partnership to the extent of their subscribed capital contribution.¡± Article 53 stipulates: “a withdrawn partner shall bear unlimited joint and several liability for the debts of the partnership arising from causes prior to the withdrawal.”]
The bosses of sole traders should also bear personal responsibility. According to Article 56 of “the Civil Code”, debts incurred during the operation of the sole trader’s business shall be borne by personal assets if the business is operated under the personal name, or by all family assets if it is operated under the family’s name or in an undistinguishable way.
The owner of a sole proprietorship enterprise also needs to take personal responsibility for employment debts. Article 2 of the Sole Proprietorship Enterprise Law stipulates that “a sole proprietorship enterprise referred to in this Law means a business entity established within the territory of China in accordance with this Law, invested by a natural person, whose assets are personally owned by the investor, and whose investor bears unlimited liability for the debts of the entity with their personal assets.”
For the most common limited liability company situation, owners or shareholders of limited liability companies do not bear personal liability for employment debts. However, there are exceptions. Please see Is the owner of an limited liability company liable for employees’ wages?
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Mr. Dong Wang has been in practice for over 20 years, specializing in business law, including employment law, commercial law, company law, and intellectual property law. Mr. Wang has earned respect and trust from his clients due to his professionalism, fidielty, and kindness.
Email: wangdong@royalaw.com