Updated: Sep 22, 2019
Not many of persons have full understanding of the multi-mode representation. Therefore, when signing contract with the partners applying multi-mode of representation, the enterprises may face to the risks.
Notable new point of Law on Enterprise 2014 is allowing Limited Liability companies and Joint Stock companies to have many legal representatives (Clause 2, Article 13). This is completely suitable with provisions of Civil Law 2015 while allowing legal entities to have many legal representatives (Clause 2 Article 137). However, Law on Enterprise 2014 does not specify how to identify the representation authority in this case and take the discretion for enterprises in the Charter. Therefore, in the event that enterprises have transactions with partners applying multi - mode of representation, enterprises may face to the following problems:
1. There is no mechanism or basis to identify the Charter providing by partner is new or updated. According to the enterprise registration regulation, when changing the legal representatives, enterprises must register with the Registration management Body but does not require enterprises to publish content and scope of representation of legal representatives. Therefore, when disputes occur, risk that partners ament, supplement the Charter in order to change the scope of representation of representative leads to disable the transactions is highly probable possibilities.
2. If the company’s Charter appoints many representatives but does not specify how to identify the specific scope of representation, rights and obligations of representatives in the case that they have made the Agreement with this partner. To solve this problem, Civil Code 2015 (takes effect from January, 1, 2017) at Clause 2 Article 141 affirms: “In case of failing to identify specifically the scope of representation provided in Clause 1 this Article, legal representatives have right to establish, execute every civil transactions because of the benefits of represented person, unless otherwise provided by law”. This is the new point of Civil Code 2015 compare to Civil Code 2005. Therefore, the transaction in this case is certainly understood as a transaction which is appropriate with the scope of representation. However, even when it is protected by this regulation, transaction is still at risk of being disable if represented person says that representative executed the civil transaction not because of the benefits of represented person. Moreover, when the Civil Code 2015 is not valid yet, how transactions signed in this case will be solved is not governed by law.
3. In an another case, whether the company Charter appoints many representatives and allows the BOD/MOD to decide the scope of representation, rights and obligations of legal representatives is legal and can be used as basis to identify the representation authority?
Current regulations do not specify about this issue. If following the logic of Law on Enterprise 2014 and the Civil Code 2015, legal representative is the person who is in the name of company/ legal entity executing the rights, obligations of company/ legal entity, which mean represent for general will of the Owner. Therefore, the Owner of the company is the person to decide how to divide his power. Following this logic, documents of the DOB/MOD will hardly be considered as the legal basis to identify the scope of representation.
Thus, current documents and in the coming time when the Civil Code takes effect in 2015 still not completely resolve clearly the issue about protecting the Third party in transactions by one of the legal representatives who established contracts beyond their scope of representation. In order to reduce risk, enterprises can execute the following solutions:
Check the Charter of partner: send written request to partner to provide the Charter and commit the Charter is new, latest update. Might compare with the Charter and legal documents of company at the Enterprise Registration Body. Today, the Portal of National Enterprise Registration provides service about providing information about enterprise attaching the latest update legal document at the Enterprise Registration Body so that enterprises can use to check each other. In the event that this Charter does not specify about division authority between legal representatives, before entering into contract with partners, enterprises can make a written notice to enterprises and the remain legal representatives to know about the transactions.
Apply multi - mode of representation in company is an inevitable trend which helps enterprises more flexibility in operation. Therefore, enterprises must be extremely careful when making transactions and actively seek plans to protect themselves against legal risks that can occur due to transactions made by the person who does not enough authority to sign.
THU HUYEN - PARALEGAL, LLVN