Limitation of Liability for Legal Representatives

Many executives hold managerial positions and concurrently legal representative of companies. Under Vietnamese law, legal representative is not only legal terminology but also amount to socially important positions of top leaders in a company. Understanding this role’s limitation of liability is often underestimated.

Definition

Under Article 12.1 of the Enterprise Law 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, 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.”

However, currently, there is no legislation detailing the term “other rights and obligations” mentioned above. In addition, even though the Enterprise Law does not limit the scope of representation of the legal representative, Article. 141.1(b),(c) of the Civil Code 2015 stipulates that the representative may only enter into and/or perform civil transactions within his/her scope of representation according the charter of the judicial person and the contents of authorization. As such, the legal representatives’ power can be limited by the internal regulations of the enterprise and may not always include all the above rights and obligations.

Responsibility and liability of the company’s legal representative

Article 13 of the Enterprise Law 2020 stipulates that legal representative has the following responsibilities:

a) to exercise and perform his/her rights and obligations in an honest and prudent manner to protect the enterprise’s lawful interests;

b) to be loyal to the enterprise’s interests; not abuse his/her power and position or use the enterprise’s information, secrets, business opportunities and assets for personal gain or serve any other organization’s or individual’s interests; and

c) to promptly and fully provide the enterprise with information about the enterprises that he/she or his/her related person owns or has shares/stakes in as prescribed in this Law.

Correspondingly, Article 13 also stipulates that within the scope of the above responsibilities, the legal representative must be held personally liable for any damage caused to the enterprise, including civil and criminal liability. Such provision, in addition to serving the purpose of clearly stating the legal representatives’ obligations, also sets limitation of liability. Specifically, the legal representative must not be held liable if the damage caused to the enterprise fall outside the scope of responsibilities or the assigned tasks.

Limitation on liability in case of multiple legal representatives

The Enterprise Law 2020 allows limited liability company and joint stock company to have multiple legal representatives at the same time. Accordingly, each legal representative is legally entitled to represent the company. If there is no separation of rights and obligations, it is presumed that they are jointly liable for damage caused to the enterprise in accordance with the civil law and other relevant laws. Thus, this situation can lead to overlapping jurisdictions or pushing of responsibilities, reluctance to engage in complex, high-risk transactions.

Article 12.2 of the Enterprise Law 2020 stipulates that in case there are multiple legal representatives, the company’s charter may specify the rights and obligations of each legal representative. It is no doubt that the clear division of legal representation is likely to avoid overlapping authorities, ease of management, and encourage each of legal representative to perform their duties in the best interest of the company.

LIKON LAW