To improve the regulations of Law on Enterprises on legal representatives of enterprises in Vietnam

1. Abstract

" The enterprise’s legal representative is the person that, on behalf of the enterprise, exercises and performs the rights and obligations derived from the enterprise’s transactions, acts as the plaintiff, defendant, or person with relevant interests and duties before in court or arbitration, and performs other rights and obligations prescribed by law." [1]. The legal representative plays an important role for each business in representing the company in negotiations, signing contracts, conducting civil transactions, and participating in procedures under Vietnamese procedural law. This requires the Law on Enterprises 2020 to have strict regulations for this subject to create a favorable legal framework for the activities of businesses in general and the exercise of rights and obligations of legal representatives of businesses in particular.

However, the regulations on legal representatives of businesses still have existing limitations and do not ensure the legitimate rights and interests of legal representatives. Therefore, it is necessary to study and propose solutions to improve the provisions of the Law on Enterprises 2020 on legal representatives of businesses.

2. Limitations and shortcomings

Firstly, regarding authorization for others to exercise the rights and obligations of legal representatives (Clause 3, Article 12 of the Law on Enterprises of Vietnam)

The Law on Enterprises 2020 states that: "An enterprise shall have at least one legal representative residing in Vietnam." to ensure the presence of the legal representative of the company throughout the investment and business activities of the company.

However, the Law on Enterprises 2020 still has an open provision: "Whenever this representative leaves Vietnam, he/she has to authorize another Vietnamese resident, in writing, to act as the legal representative, in which case the authorizing person is still responsible for the authorized person’s performance." [2]. This provision facilitates the operations of businesses when they no longer have a legal representative residing in Vietnam, allowing them to authorize others to exercise the rights and obligations of the legal representative. However, this provision still has the following limitations:

First, there is no regulation on the main content of the authorization document.

Clause 3 of Article 12 of the Law on Enterprises 2020 of Vietnam mentions that the legal representative of the business authorizes another individual residing in Vietnam to exercise the rights and obligations of the legal representative through a written document. However, the regulation does not specify what information or main content should be included in the authorization document. Therefore, it is impossible to determine the scope of authorization and the duration of authorization if the authorization document does not record these essential contents. In the event of a dispute between the legal representative and the authorized person regarding the authorization issue, the lack of recognition of the scope of authorization will create difficulties in determining the basis and evidence to resolve the dispute.

Second, there are limitations in the provision on the responsibility of the legal representative when the authorized person exercises the rights and obligations of the legal representative.

Clause 3, Article 12 of the Law on Enterprises 2020 states: "The legal representative is still responsible for the exercise of the authorized rights and obligations." Thus, in all cases, the legal representative is still responsible for the actions of the authorized person, even if those actions are beyond the scope of the authorized rights and obligations. According to the author's assessment, this regulation is unreasonable, inappropriate, and contradictory to the provisions of Article 143 of the Civil Code 2015 regarding the consequences of civil transactions established and performed by a representative beyond the scope of representation.

Secondly, regarding the legal representative of the "two-member" limited liability company

Clause Article 12 of the Law on Enterprises 2020 stipulates: "In a two-member limited liability company, if the member who is the company’s legal representative is dead, missing, facing criminal prosecution, kept in temporary detention, serving an imprisonment sentence, serving an administrative penalty in a correctional institution or rehabilitation center, making getaway; has limited legal capacity or is incapacitated, has difficulty controlling his/her own behaviors, is banned by the court from holding certain positions or doing certain works, the other member shall obviously assume the position of the company’s legal representative until the Board of Members issues a new decision on the company’s legal representative.".

The above provision determines the replacement of the legal representative of the "two-member" limited liability company if the member who is the company’s legal representative is dead, missing, facing criminal prosecution, kept in temporary detention, serving an imprisonment sentence, serving an administrative penalty in a correctional institution or rehabilitation center, making a getaway, has limited legal capacity or is incapacitated, has difficulty controlling his/her own behaviors, or is banned by the court from holding certain positions or doing certain works. Thus, "the other member shall obviously assume the position of the company’s legal representative until the Board of Members issues a new decision on the company’s legal representative.".

The "other member" mentioned above can be an individual or an organization. However, according to the provision in Clause 1, Article 12 of the Law on Enterprise 2020: "The enterprise’s legal representative is the person that, on behalf of the enterprise, exercises and performs the rights and obligations derived from the enterprise’s transactions...". Therefore, in the case of the other member being an organization, it is obvious that the organization cannot act as the legal representative of the company. Thus, the provision in Clause 6 of Article 12 of the Law on Enterprise is impractical and cannot be implemented.

Thirdly, regarding the case of a sole proprietorship with a missing legal representative

Clause 5 of Article 12 of the Law on Enterprises 2020 stipulates: "In case the only legal representative of an enterprise she is not present in Vietnam for more than 30 days without authorizing another person to act as the enterprise’s legal representative, or is dead, missing, facing criminal prosecution, kept in temporary detention, serving an imprisonment sentence, serving an administrative penalty in a correctional institution or rehabilitation center, has limited legal capacity or is incapacitated, has difficulty controlling his/her own behaviors, is banned by the court from holding certain positions or doing certain works, the enterprise’s owner, Board of Members/Partners or Board of Directors shall appoint another legal representative".

The above provision regulates the absence of the legal representative of the following types of enterprises: limited liability company, joint-stock company, and partnership. So how is the case of a missing legal representative of a sole proprietorship handled? The lack of regulations on handling and resolving the case of a missing legal representative of a sole proprietorship will create difficulties in determining the replacement of the legal representative of the sole proprietorship to exercise the rights and obligations of the legal representative of the enterprise. As a result, it may lead to the stagnation of investment, production, and business activities in sole proprietorships.

3. Proposal for improving regulations

Firstly, amend the provisions in Clause 3, Article 12 of the Law on Enterprises 2020

(i) Add Clause 3a to Article 12 of the Law on Enterprises 2020 to regulate the main content of the authorization document for exercising the rights and obligations of the legal representative according to the law, including mentioning the content of the authorization period, the scope of authorized rights and obligations...

(ii) Amend the content regarding the responsibility of the legal representative according to the law when the authorized person exercises the rights and obligations of the legal representative according to the law. Propose amendments to Clause 3, Article 12 of the Law on Enterprises towards implementing the provisions of civil law regarding the establishment of representative rights.

Clause 3, Article 12 of the Law on Enterprises is rewritten as follows: "An enterprise shall have at least one legal representative residing in Vietnam. When there is only one representative in Vietnam, whenever this representative leaves Vietnam, he/she has to authorize another Vietnamese resident, in writing, to act as the legal representative, in which case the authorizing person is still responsible for the authorized person’s performance.".

Secondly, improve the regulations in Clause 5, Article 12 of the Law on Enterprises 2020

Propose that lawmakers study, amend, and supplement the provisions of the Enterprise Law 2020 in general, and specifically Clause 5, Article 12 of the Law on Enterprises 2020, regarding the determination of a replacement person as the legal representative according to the law for exercising the rights and obligations of the legal representative according to the law of sole proprietorships in case the legal representative of the sole proprietorship goes missing.

Thirdly, amend the regulations in Clause 6, Article 12 of the Law on Enterprises 2020

Propose adding the phrase "as an individual" to ensure the completeness and feasibility of the Law, ensuring consistency with the provisions in Clause 1, Article 12 of the Law on Enterprises 2020 regarding the determination of the legal representative of the business who is an individual.

Clause 6, Article 12 of the Law on Enterprises 2020 is rewritten as follows: " In a two-member limited liability company, if the member who is the company’s legal representative is dead, missing, facing criminal prosecution, kept in temporary detention, serving an imprisonment sentence, serving an administrative penalty in a correctional institution or rehabilitation center, making getaway; has limited legal capacity or is incapacitated, has difficulty controlling his/her own behaviors, is banned by the court from holding certain positions or doing certain works, the other member shall obviously assume the position of the company’s legal representative until the Board of Members issues a new decision on the company’s legal representative".

The above are some solutions to improve the provisions of the Law on Enterprises 2020 regarding the legal representative of the enterprise. They contribute to improving legal regulations, creating a favorable legal environment for the activities of enterprises in general, and ensuring the legitimate rights and interests of the legal representative of the enterprise in particular.

PHAM THI LE XUAN (Coast Guard Region 2 Command)

Source: Tạp chí Toà án (Court Journal)

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