Legal Status of Legal Representatives of Enterprises

Chapter 3

STATUS OF LAW AND PRACTICE OF LAW IMPLEMENTATION ON LEGAL REPRESENTATION OF ENTERPRISES

3.1. Legal status of legal representatives of enterprises

The current system of legal regulations on legal representation in Vietnam is determined to include the norms in the 2020 Enterprise Law and the 2014 Law on Legal Representation. The legal representation model is determined to include factors such as: the title of the legal representative in the enterprise, the authority to represent, the legal obligations of the representative, the legal responsibility and the representative supervision mechanism. The content of legal regulations on specific issues is analyzed based on the scientific principles that need to be ensured for that issue and compared with the regulations regulating similar content in the laws of a number of countries in the world.

Maybe you are interested!

3.1.1. Concept of legal representative of an enterprise

The Vietnamese Enterprise Law stipulates the concept of independent legal representative in the Enterprise Law. According to the historical development of enterprise law, this concept has always existed and still retains its basic meaning. The Enterprise Law of 1990 did not have the concept in the legal document. The concept of legal representative of an enterprise officially appeared in the Enterprise Law of 1999, maintained in the Enterprise Law of 2000, the Enterprise Law of 2005, the Enterprise Law of 2014 and until the Enterprise Law of 2020 is in effect in Article 13.

Articles 14 and 15 of this document also stipulate that the Charter must include the identity of the company's legal representative. According to this legal document, legislators have separated the concepts of representative and manager in the company. This also means separating ownership, management, supervision and independent representation rights from each other. The legal representative is: " an individual representing the enterprise to establish and exercise rights and obligations arising from the enterprise's transactions, representing the enterprise as a person requesting settlement of civil matters, plaintiff, defendant, person with related rights and obligations before the Arbitration, Court and other rights and obligations as prescribed by law ". This provision does not change the content of Article 13 of the 2014 Enterprise Law but only adds the function of representing the enterprise requesting settlement of civil matters.

From this concept, it is necessary to consider limitations such as:

Firstly , maintaining the concept of independent representative creates an overlap in the authority of the representative and the manager as stipulated in the LDN. This concept is approached from the perspective of the function of the legal representative on behalf of the representative subject to the outside. This representation right is regulated independently, in addition to the concept of the manager and the wording design leads to the next logical understanding that both subjects have the right to represent and establish transactions according to their authority.

Second , from this concept, it can be determined that the LDN only allows a single subject to become a legal representative, which is an individual, although according to the provisions of the 2015 Civil Code in Article 134, the representative can be an individual or a legal entity when they have legal capacity and civil conduct capacity appropriate to the transaction. This provision is different from the 2006 UK Company Law, amended and supplemented in 2018, when it allows the Director (Director) to have the right to act on behalf of the company, which can be a legal entity [118, Article 155].

As analyzed in section 2.1, the concept of legal representative of enterprises does not exist in the corporate law of England, France, Germany and only appears in the Chinese Enterprise Law. To find the reason why Vietnamese enterprise law has provisions similar to Chinese law on this issue and different from Western countries, we must return to the legal viewpoints governing the process of building the Civil Code and Enterprise Law of Vietnam, especially the reception of the theoretical system on legal entities and representation. The initial reason is that Vietnam was influenced by Soviet law with the characteristics of managing business enterprises according to planning, focusing on the goals set by the State. Entering the period of innovation, starting from the Enterprise Law in 1990 to the Enterprise Law in 1999, the Enterprise Law in 2005, Vietnamese law absorbed the influence of German national law. However, the construction of a unified legal theoretical foundation throughout the legal system has not been properly invested, so corporate law on legal entities and representation does not follow any clear legal theory. Although from the outside, the ideology and structure of civil and economic law are influenced by the continental European school of law, specifically Germany and Japan [42, p. 4], but considering specific laws, they are in the direction of synthesizing norms, not showing the

clear consistency in principle. This is demonstrated through a similar comparison of the provisions of the laws of France, Germany, and Vietnam on legal entities and legal representatives of legal entities. When comparing in the corporate laws of other countries, specifically the French Commercial Code of 1807, amended in 2020, the German Joint Stock Company Act of 1965, most recently amended in 2017, and the Japanese Company Law of 2006, the concept of legal representative of an independent enterprise is not stipulated. French, German, and Japanese laws do not separate the titles of legal representative and manager in a company. The laws of the UK and the US, with the characteristic of the concept that the relationship representing an enterprise is essentially a fiduciary relationship, also do not have this concept.

With the provision of separating the title of the person with the right to act as an independent legal representative, it can be seen that Vietnamese legislators consider the enterprise to be the represented person, and the legal representative to be the representative. In other words, the representative relationship here includes 3 parties: the represented party (enterprise), the representative party (the legal representative) and the third party in the transaction.

3.1.2. Title of legal representative of an enterprise in Vietnamese enterprise law

The title of legal representative of an enterprise is stipulated in the 2020 Enterprise Law for each type of enterprise. The 2020 Enterprise Law inherits similar content in the 2014 Enterprise Law. Accordingly:

- For a single-member LLC that is an individual: the legal representative is the Chairman of the company (Article 81 of the 2020 Enterprise Law).

- For a one-member LLC that is a legal entity: There must be at least one legal representative holding the position of Chairman of the Company/Chairman of the Board of Directors or General Director/Director according to the company's governance model. If the Charter does not stipulate, the legal representative is the Chairman of the Board of Directors/Chairman of the Board of Directors (Clause 3, Article 79 of the 2020 Enterprise Law).

- For LLCs with 2 or more members: There must be at least one legal representative holding the position of Chairman of the Board of Directors, or General Director/Director. In case the Charter does not stipulate, the legal representative is the Chairman of the Board of Directors (Article 54 of the 2020 Enterprise Law).

- For JSC: in case there is only one legal representative, the Chairman of the Board of Directors or the General Director is the representative. In case the Company Charter does not have any regulations, the Chairman of the Board of Directors is the representative. In case there are many legal representatives, the Chairman of the Board of Directors and the General Director/Director are the legal representatives (Clause 2, Article 137 of the 2020 Enterprise Law).

- For limited liability companies: General partners who carry out business operations are the legal representatives of the company. Only when a general partner is the Chairman of the Board of Members, Director or General Director of the limited liability company is he/she the legal representative of the company (Article 184 of the 2020 Enterprise Law).

In addition, the LDN also stipulates that companies may have one or more legal representatives. The number, management titles, rights and obligations of legal representatives are specified in the company's Charter.

Compared with the representative model of enterprises in the UK, France, and Germany, it can be seen that the representative model in the Vietnamese Enterprise Law has different characteristics. Accordingly, the Enterprise Law specifies the option of selecting the title of legal representative according to the provisions of the Enterprise Law and the Company Charter (Limited liability company with two or more members, Joint Stock Company, Limited Liability Company) with independence from its own functions. It can be affirmed that: the legal representative of an enterprise is certainly the person holding the management role, but not all enterprise managers have the right to represent the enterprise. Although the position of representative is designated as the enterprise manager, the Enterprise Law does not stipulate in the direction of allowing managers to have the authority to represent according to their management rights. The concepts of legal representative and manager are stipulated separately. In other words, there is a distinction between the right to represent and the right to manage within the enterprise.

The reason for this difference can be partly explained by the legal theory that influences the construction of the law on DDTPL. The influence of the Continental European legal system is clearly reflected in the law designating a personal representative on behalf of the enterprise - with full authority to conduct transactions as a subject of law. The Realistic Theory does not create an advantage in Vietnam, which is clearly shown through the authority of the Board of Directors to represent the outside - as the executive body of the enterprise is completely not recognized. The Law on Enterprises also does not recognize the term "executive body" but only

The recognition of “management agencies” has partly demonstrated this point of view. The representation of enterprises does not originate from the relationship between members owning legal entities but is entirely a form of legal representation. However, these things do not completely prove that Vietnam recognizes the theory of fiction. Dr. Nguyen Ngoc Dien commented: “legal entities in Vietnamese law are neither a fiction nor a reality” [18, pp. 110, 111]. The Penal Code of Vietnam before 1999 did not recognize enterprises with legal status as a subject of criminal responsibility partly due to the view that legal entities are fictional entities, which was later changed in the direction that legal entities are independent subjects subject to criminal responsibility.

Comparing with France and Germany - typical representatives of the current European legal school, we can see that Vietnam is following a separate path. The provisions of the French Commercial Code of 1807, amended and supplemented in 2020, stipulate the right to represent the enterprise for the manager of a limited liability company: " In relations with third parties, the manager is entitled to act on behalf of the company in all cases, depending on the legal capacity for the company to operate " [117, Article 223-18]. Germany also established similar regulations for joint stock companies, according to which the Board of Directors " is the manager " [119, Article 76] and has " unrestricted representation rights " [119, Article 82].

Evaluating this provision from the perspective of corporate governance will reveal the unreasonableness of the current model in the Vietnamese Enterprise Law. The system of appointing representatives for those with the right to represent (which may or may not be managers in the enterprise) and separating the two provisions on separate representatives and separate managers is not beneficial for managing the company in specific areas of expertise (finance, human resources, business, etc.). As a result, the company lacks the ability to adapt and compete, and is not convenient for carrying out regular transactions and other activities. When the Enterprise Law of the previous year in 2014 only stipulated that enterprises have one legal representative, this limitation is more evident than ever. First, the legal representative of the enterprise must bear very heavy legal responsibilities, and in fact, there are cases where they still have to bear responsibility for transactions that are not in accordance with their management capacity. On the other hand, due to the separation of representative rights from executive rights (if they are fully concurrently

(as stipulated in the company's charter), there are many cases where the representative's rights are not clearly defined, easily confusing them with management rights. In fact, when many companies choose the model of having only one legal representative of the enterprise, it leads to the abuse of power by the representative, causing serious damage to the company, shareholders, and the interests of the company's creditors when there is no effective monitoring mechanism.

From a legal perspective, considering the responsibility of the legal representative, current regulations will create overlap when defining the representative authority for many representatives and make it difficult to bind the legal responsibility following that decision. For example, the Board of Directors or the Board of Management makes a decision, but the implementation and representation of the enterprise to sign the contract is General Director B. When damage occurs to the enterprise, determining B's responsibility will be more difficult because the decision-making authority belongs to another entity, General Director B is simply responsible for implementation by using his identity. Therefore, maintaining a person with clear and legal representative authority will increase that person's management responsibility. Enterprises with many executive managers are decentralized with internal executive power and external representatives in accordance with the field and tasks assigned by the enterprise, so they should be considered for research.

If the Vietnamese Law on Enterprises unifies the legal representative and the manager as in the model of the laws of the UK, US, France, Germany, and Japan, it will be more convenient for the implementation of the broad representative authority of the enterprise, creating conditions for the enterprise to participate in transactions in the market quickly. That will facilitate the determination of legal responsibility of enterprises with many managers with the delegated representative authority. Power in the enterprise is allocated to agencies into three main powers: ownership, management rights accompanied by representative rights and supervision rights.

If the model of the legal representative being the enterprise manager is applied, the State will better perform state management activities for enterprises. That will facilitate the prosecution of the responsibilities of representatives who are also the actual enterprise managers due to the consideration of the more diverse authority of the actual manager. That is the company charter or authorization contract or the actual acts and signs that the law agrees with.

satisfy the conditions for establishing a "hidden" manager as indicated by the laws of the UK and US (Article 156 of the UK Companies Act 2006, amended in 2018).

The view that the right to represent does not become an independent right in an enterprise is more reasonable when compared with the 2014 LPS. The management of state agencies over those holding important positions in an enterprise is not focused on the legal representative but is assigned to those who manage that enterprise. For example, the regulation on the prohibition of managing an enterprise after bankruptcy in Article 130 of the LPS. From the above analysis, the author believes that it is unreasonable to separate the subject with the right to decide - the right to manage can be separated from the subject with the right to represent - to sign contracts on behalf of the enterprise.

One of the advances of the 2014 Enterprise Law and the 2020 Enterprise Law is the wide distribution of the authority to represent the enterprise to many people. Previously, the 2005 Enterprise Law stipulated that an enterprise had only one legal representative. The 2014 Enterprise Law amended that provision in the direction that the legal representative does not need to be the head of the legal entity and can have many legal representatives. The current Enterprise Law inherits this progressive provision. This provision is a liberation, giving freedom to enterprises, bringing convenience to enterprises when carrying out business activities when the sole representative is absent. The basis for the wide distribution of representative authority is reasonable because when the representative's behavior expresses the will and represents the enterprise to carry out transactions, that transaction will be legally binding on the enterprise. It can be seen that the appointment of the position of the legal representative is regulated by law for types of enterprises such as joint stock companies, limited liability companies, two-member LLCs, one-member LLCs that are organizations, while one-member LLCs that are individuals do not clearly stipulate the position of the legal representative as the Chairman of the company.

In addition, although permitted by the Civil Code, the Vietnamese Law on Enterprises is not ready for a legal entity to become a legal representative of an enterprise, but only an individual. Compared with the laws of other countries, it can be seen that each country has a different view. The UK Company Law 2006, amended in 2018, allows the representative to be an individual or a legal entity (Article 164) because the person with the right to represent is the member of the Board of Directors in the company. Among those members, there are members who are legal entities. France also has regulations

similarly. Thus, the right of representation is associated with the role of managers usually in the Board of Directors/Board of Management of the company. It is understandable to recognize the right of representation for legal entities, but all countries require these legal entities to have a natural person representative to exercise their management and representation rights.

A legal entity can become a legal representative or a business manager. When a legal entity becomes a representative, it can authorize an individual to be its permanent representative to perform its representative duties. If no authorization is established, the permanent representative can be the legal representative according to the law of that legal entity. This permission has both advantages and disadvantages for the enterprise. This rule is quite convenient for parent companies to operate their subsidiaries according to consistent and unified policies. However, it is also difficult to determine the joint liability of the permanent representative. When there is a violation causing damage to the enterprise, the representative legal entity will be legally responsible as a representative. However, at this time, it is necessary to prove that the role of the permanent representative violates the duty of loyalty and care towards the represented person. Therefore, determining joint liability becomes more complicated. The provision that the legal representative is a natural person has the advantage of making it easier to manage and supervise the representative, and is convenient for directly prosecuting the representative's responsibility when there is a violation. In the author's opinion, the Law on Enterprises can boldly allow a legal entity to become a legal representative or enterprise manager because the selected legal entity has more financial capacity than an individual when considering the responsibility to compensate for the damage the enterprise must bear if there is a violation. On the other hand, the law does not maintain the management role but gives the enterprise autonomy to decide on this issue, which is a trend consistent with the private law nature of the Law on Enterprises.

3.1.3. Legal provisions on conditions for appointment and dismissal of legal representatives of enterprises

a, Legal regulations on conditions for legal representatives of enterprises

Firstly , the current LDN has regulations on appointment conditions for legal representatives, but there are still limitations and do not ensure the rights and interests of legal representatives. Specifically:

Comment