What are legal risks for taking behalf of the enterprise as its legal representative according to Vietnam’s regulations?

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, arbitration, and performs other rights and obligations prescribed by law.

Thus, the legal representative is an important and indispensable position in every enterprise, responsible not only to the law but also to the shareholders/members of the company. When taking on the name of a legal representative, especially for those who have little understanding of the law and business activities, the potential risks are greater, including:

1. Take responsibility before the law for the company's business activities

The term "legal representative" has partly shown the responsibility of this position before the law. The signing, stamping and papers, minutes, contracts of the legal representative will be extremely dangerous if the stamping is only a formality, in fact, the signer does not fully understand the contents of these documents. Particularly, in the case that those who aim to make profit have conducted business in contravention of the law, then, as the legal representative - the representative of the company before the law, this representative cannot avoid being jointly responsible for such violations.

2. Obligations towards the company

In case the company operates in compliance with the law, the next risk is that the legal representative has to bear his personal responsibility and obligation towards the company, shareholders/members in the company. This is specified in Clause 2 Article 14 of the Law on Enterprises 2014 of Vietnam on responsibilities of the enterprise’s legal representative: “The legal representative of the enterprise is personally responsible for the damage caused by his/her violations against the obligations mentioned in Clause 1 of this Article.”

The owners and groups of business owners have the right to sue and ask the manager to compensate the company. Even though it is on behalf of the enterprise, the legal representative cannot use the excuse of not knowing these responsibilities to exclude his own responsibility.

3. Financial risk

This financial risk will appear when the legal representative who is also a member/shareholder in the company and the owners actually fail to fulfill the capital contribution obligation as committed. And then, according to the principle, in case that a member/shareholder does not make capital contribution as committed, those people - currently the person on behalf of the enterprise will be jointly responsible for the financial obligations of the company. (Clause 4 Article 48 of the Law on Enterprises 2014 of Vietnam).

4. Legal liability for acts of taking the behalf of enterprise

In addition to the risks mentioned above, the act of taking the behalf of an enterprise is prohibited by law. Specifically, according to Clause 4 Article 17 of the Law on Enterprises 2014 of Vietnam, “providing untruthful information in the application for enterprise registration or application for adjustments to business registration” is prohibited.

A fine of VND 10,000,000 - VND 15,000,000 shall be imposed for provision of inaccurate or untruthful information in the application for enterprise registration according to Article 24 of the Decree No. 50/2016/NĐ-CP of Vietnam’s Government if detected by competent authorities, even though it has not caused any harm.

For all the reasons mentioned above, every individual should consider carefully when accepting offers to be the enterprise’s legal representative. Do not take great risks before the law, other organizations and individuals for the immediate benefit.

Hoa Hong

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