NEW REGULATIONS ABOUT ENTERPRISE LEGAL REPRESENTATIVE IN BUSINESS LAW 2020

Business Law 2020 with noticing amendments facilitating for enterprises has been approved and officially take effect since January 1st, 2021. Accordingly, in order to promote the important role of enterprises’ legal representatives, many related contents have been altered for better adaptation. The following article shall mention together with analyze these adjustments.

1. Amendments in the representative’s role

– According to Clause 1 Article 12 of Business Law 2020: “Legal representative of an enterprise is an individual representing the enterprise, exercising rights and obligations arising from transactions of the enterprise, representing the enterprise in the capacity of requesting for civil matter resolutions, the plaintiff, the defendant, the person with related interests and obligations in arbitration, court and other rights and obligations as regulated by law”.

– Compare to Clause 1 Article 13 of Business Law 2014, the above definition of Business Law 2020 has added the responsibility of requesting for civil matter resolutions for the legal representative.

In accordance with Code of Civil Procedure 2015 and Business Law 2020, the business representative that  requests for civil matter resolutions shall be the person that requests the Court to recognize or not recognize a legal occurrence to incur rights and obligations of civil, business, commercial and labor.

This regulation unified the role of business representatives in Code of Civil Procedure and Business Law, creating advantages for the representatives to effectively perform their roles.

2. Detailed regulations on more than one representative cases

Business Law 2014 regulated the case where one company could have more than one legal representative.

Yet, Clause 2 Article 12 Business Law 2020 has clearer provisions on the company’s charter about having legal representatives.

Accordingly, the company’s charter shall specify the rights and obligations of each representative. In case the division of rights and obligations of each legal representative is not clearly specified in the charter, each legal representative of the company shall be the authorized representative of the enterprise in front of the third party. It is also noticeable that in the event of the representative’s rights and obligations division has not been implemented: “All legal representatives are jointly liable for any damage caused to the enterprise in accordance with the civil law and other relevant laws.”

This regulation shall facilitate enterprises in deciding the number, managerial position or rights and obligations of the enterprise’s legal representative, in order to perform rights and obligations arising from the transaction of the enterprise.

3. Add the cases of replacing the legal representative by another person

As regulated in Business Law, enterprises shall ensure that at least one legal representative resides in Vietnam at all times to exercise its rights and obligations. Therefore, if the enterprise has only one legal representative left but does not ensure the implementation of rights and obligations of the enterprise, the company owner, the Members’ Council or the Board of Directors shall send another person for replacing.

In comparison with Law on Business 2014, Clause 5 Article 12 of Business Law 2020 adds cases in which the enterprise owner, the Members’ Council or the Board of Directors have to replace their current representative if this person is absent from Vietnam for more than 30 days without authorizing another person to exercise his/her rights and obligations. Thus, the enterprise owner, the Members’ Council or the Board of Directors shall have another person to replace the legal representative under these circumstances:

  • Dead;
  • Missing;
  • Being examined for criminal liability;
  • Being temporarily detained;
  • Serving a prison sentence;
  • Serving an administrative handling measure at compulsory detoxification facility, compulsory educational facility;
  • Limited or incapable of civil acts;
  • Having difficulty in perceiving, controlling acts;
  • Banned by court from holding positions, practicing or working certain business.

Simultaneously, Business Law 2020 abolished “Sentenced” and replaced it with “Serving prison sentence”.

4. Add cases of automatically becoming the legal representative

Business Law on 2020 also includes a number of cases to automatically become the legal representative of the limited company with two members at Clause 6 Article 12. Particularly, the remaining member shall be the new legal representative of the company until there is a new decision from the Members’ Council when the current representative is under one of the following cases:

  • Dead;
  • Missing;
  • Being examined for criminal liability;
  • Being temporarily detained;
  • Serving a prison sentence;
  • Serving an administrative handling measure at compulsory detoxification facility, compulsory educational facility;
  • Escaping from the residence;
  • Limited or incapable of civil acts;
  • Having difficulty in perceiving, controlling acts;
  • Banned by court from holding positions, practicing or working certain business.

Hence, compared to the Law of 2014, when an individual that legally represents the enterprise sentenced to prison, the remaining member shall not automatically become the new legal representative. Besides, if the representative is banned by the Court from working, the other member shall replace his/her place without the demand of their reasons specified in Enterprise Law 2014: being deprived from working due to committing smuggling, counterfeiting, illegal business, tax evasion, deceiving customers and other crimes as regulated in the Criminal Code.

5. Changes in the legal representative’s responsibility

The responsibilities of the legal representative in the Law on Enterprises 2020 includes  a change that should  also  be  noted. According  to  the Law 2020, the representative should: “Promptly, fully and accurately notify the enterprise about the enterprise which he/she or his/her related person owns, holds shares or capital contribution in accordance with the provisions of this Law.” Compared to Business Law 2020, the representative shall notify when they or their  related people own or hold dominant shares or capital contributions  in other enterprises. Due to the current law, the dominant capital contribution is understood as over 50% of charter capital.

Therefore, due to Business Law 2020, it is not required that the capital contribution of the representative or the people related to the representative have to be the dominant capital contribution. If the people mentioned above hold or own capital contribution of other enterprises, they shall inform promptly, fully and accurately to their enterprises for management.

The above is the entire analysis regarding the latest changes of the enterprise legal representatives due to Business Law 2020 . For detailed advice, please contact LawPlus via phone +842862779399 or email info@lawplus.com.

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