Key statutory positions in foreign invested enterprises in Vietnam: Rights and responsibilities.

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Key statutory positions in foreign invested enterprises in Vietnam: Rights and responsibilities

One of the main concerns for investors seeking to enter the market in Vietnam and establish a formal presence is choosing the statutory management positions in the corporate entity. Understanding these statutory positions and management roles within the corporate structure of the Vietnamese entity enables investors to understand the structural responsibilities of the key staff running the business in Vietnam and a create a strategy to select their most appropriate positions for the key personnel.

Under the prevailing Vietnamese laws, each type of enterprise in Vietnam generally has a different managing and corporate statutory structure. Thus, the statutory roles and managing positions will depend on the type of enterprise choses for the market entry in Vietnam. In this article, we provide practical information about the managing structure (statutory positions) of some most popular forms of business which foreign investors often choose when undertaking investments in Vietnam: Limited Liability Company (LLC) and Joint Stock Company (JSC).

The Enterprise Representatives – the 2 general key statutory positions

The 2 most common statutory positions relevant when a foreign investor seeks to establish an enterprise in Vietnam are: Legal Representative and Authorised Representative, regardless of the enterprise type:

Legal Representative

According to Article 12 of the Law of Enterprise 2020, a Legal Representative (LR) is defined as an individual representing the enterprise to:

  • Exercise the rights and obligations arising from the enterprise’s transactions
  • Settle a civil matter as a plaintiff, defendant, person with interests, related obligations before Arbitration, Court and other rights and responsibilities as prescribed by law

*An LCC or a JSC can have more than one 1 Legal Representative in their managing structure, of any nationality, as long as at least one of them is residing in Vietnam.

In practice, it is common that investors appoint 2 Legal Representatives of the company: the first legal representative sits in the parent company/investor, and has a broader range of rights and responsibilities and a higher degree of power, thus conveying an increased level of protection and security for the investment structure, and the second one resides in Vietnam and is responsible for the organisation in the country, with limited rights and responsibilities based on the company charter and which reports to the first legal representative, and performs its duties under instructions from the first legal representative from the parent company investor.

Authorised Representative

According to Article 14 of the Law on Enterprise 2020, an Authorised Representative (AR) is defined as an individual authorised in writing in the name of a foreign organization (the investor in the Vietnamese entity) to exercise rights and perform obligations following Vietnamese laws in the Vietnamese company. In other words, in case the investor in an enterprise in Vietnam is an organisation, the investor is required to authorise an individual(s) to represent their capital in the Vietnamese entity. The AR can be concurrently the LR of the company. The authorised person(s) will be mentioned in legislation as the AR of the investor.

*The number of Authorised Representatives will depend on the type the of company and the capital holding ratio of the foreign organisation investor.

 

Other key statutory positions reflected in a Vietnamese enterprise

Chairman

An individual appointed by the corporate owner/investor in the Vietnamese entity (or elected by the Members’ Council in a multi-member structure), to act on behalf of the Owner/Investor and perform the rights and obligations of the Owner/Investor (The AR of the Investor mentioned in the previous section). It can be appointed as Legal Representative as well and it can concurrently act as the Director/General Director of the Vietnamese entity.

General Director

An individual hired or appointed by the Chairman of the company (or the Member’s Council in a multi-member structure) whose role is to undertake the operational provisions of running the business on a day to day business, overseeing the operations of the enterprise in Vietnam form an operational/management perspective. The General Director can concurrently act as the Legal Representative of the enterprise in Vietnam, as the most common scenario.

Chief Accountant

Even though not part of the management structure of a Vietnamese entity per se, the Chief Accountant, in addition to the Legal Representatives and the General Director, is one of the important statutory roles in a Vietnamese structure. In Vietnam, companies are required to appoint a “Chief Accountant” as a statutory position. The Chief Accountant role is one that is not common in most countries, particularly those with a Common Law background, and the purpose and responsibilities of the appointment is often misunderstood. Vietnamese laws state that the Chief Accountant is the “head of the accounting function” of a company, and we will discuss further what that means. Companies can also appoint an Acting Chief Accountant for up to 12 months prior to the appointment of a Chief Accountant, which should have the same qualifications and requirements as the CA.

Companies should therefore be careful when selecting and appointing their Chief Accountant. We commonly see service providers and companies name unqualified individuals just to fill the role so that they can register for taxation and open bank accounts, but this dangerous from a compliance perspective, and not in compliance with Vietnamese laws. Unless there is an appropriate understanding of the obligations of a Chief Accountant, this will likely expose the company to compliance risks, on top of the financial penalties for non-compliance.

From a structural perspective, although the Chief Accountant is (per the Law on Accounting) the head of the Accounting Function, in reality the role may be under the supervision of a greater finance function, reporting to a CFO or Financial Controller, or form part of the greater compliance function of a company. Chief Accountants can object to demands from Legal Representatives (or Chief Accountants of parent entities) where the request violates laws, but they are required to follow the requests – therefore where they object to the request that violates laws, the Chief Accountant is required to document their objection so as to remove their personal liability for the action.

The Legal Representative has the greatest exposure for not meeting company requirements. However, the Chief Accountant does have certain responsibilities and liabilities arising from their role. Legal Representatives cannot simply blame the Chief Accountant for non-compliance with laws, as they have ultimate responsibility, but where the Chief Accountant incorrectly performs their role (and didn’t record an objection if they believe the instructions from their superior where incorrect), then they will have exposure.

More notes on the role of the Chief Accountant in our Advance in Vietnam Podcast here and in our insight here.

In the following part we delineate the statutory corporate structure and management titles for two of the most common types of enterprises (with different ownership structures) registered in Vietnam.

Conclusion

To achieve a secure and compliant entity structure with an efficient capital control, we advise international investors to consider choosing an efficient and tailored corporate statutory model, as well as plan for having the right management personnel accordingly. In our practical experience, we find that foreign investors tend to choose the following structures for their statutory management positions:

  1. Multiple Members Limited Liability Company: Members’ Council, Chairman of the Members’ Council, General Director/ Director.
  2. One-member limited liability company owned by an organisation: Company Chairman, General Director/ Director
  3. One-member limited liability company owned by an individual: Company Chairman, General Director/ Director
  4. Joint stock company: General Meeting of Shareholders, Board of Management, Chairman of Board of Management, General Director/ Director.

If you need any assistance with these or any other matters relevant for international investors in Vietnam, our experts are ready to work with your company to ensure you understand how the above will apply to your specific situation in Vietnam.

 

Contact our teams for expert support and further information on statutory positions and management roles relevant for an enterprise in Vietnam:

Phuong Vo – Head of Incorporation, Licensing and Secretarial Services – phuong.vo@acclime.com

Matthew Lourey – Managing Partner – m.lourey@acclime.com

Last updated on October 3, 2022
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