MISCONCEPTIONS ABOUT THE LEGAL REPRESENTATIVE ROLE IN COMPANIES - OTIS LAWYERS

Enterprises (except sole proprietorships) are legal entities that exercise their rights and obligations through legal representatives. Given their crucial role, legal representatives are positions that require stability to serve the business activities effectively. However, in many cases, this position may undergo frequent changes, according to the needs of the enterprise or personnel fluctuations. Therefore, for effective corporate governance, to avoid unnecessary interference from business owners while still ensuring compliance with legal regulations when changing legal representatives, companies need flexibility in their internal regulations. In this article, we will analyze some issues related to changing legal representatives and provide insights for companies when drafting internal regulations to anticipate such situations. To focus and make the opinions as concentrated and useful as possible, we will limit the scope of this article to companies with the form of joint-stock companies (hereinafter referred to as "companies").

Is it necessary for the legal representative to be a company manager?

The Enterprise Law stipulates that the legal representative of a company is an individual representing the company to exercise the rights and obligations arising from the company's transactions and other activities. According to this provision, the Enterprise Law does not directly address whether the legal representative must necessarily be a company manager. However, Article 12(2) of the Enterprise Law 2020 states: "The company's charter specifically stipulates the number, title, and rights, obligations of the legal representative of the enterprise."

Thus, the question arises whether the term "managerial position" in the above provision is synonymous with the legal representative must be a company manager?

According to the Enterprise Law, for joint-stock companies, company managers are defined as the Chairman of the Board of Directors, members of the Board of Directors, Director, or General Director, and individuals holding other managerial positions as stipulated in the company's charter. This means that companies have the right to regulate other managerial positions in their charters, and individuals holding these positions will be considered as company managers.

In our view, although not directly specified, the requirement of the Enterprise Law for the company's charter to specify the managerial title of the legal representative implies that the legal representative is also the company manager.

Authority to decide on changing the legal representative

In practice, many companies may misunderstand the provision regarding the authority to decide on changing the legal representative, leading to the issuance of many decisions that do not ensure legal grounds. Specifically, as mentioned above, since the legal representative is also a company manager, some companies change the legal representative by issuing decisions to appoint legal representatives. Note that although the legal representative also holds one or more managerial positions in the company, the legal status of this person needs to be distinguished in each role.

In their role as company managers, depending on the managerial position they hold, they may be appointed, elected, or sign labor contracts by individuals, competent authorities in the company. The Enterprise Law 2020 also clearly defines the authority of the General Meeting of Shareholders, the Board of Directors, and the Director or General Director of the company in appointing, electing, or signing labor contracts with individuals holding managerial positions in the company. Therefore, when appointing, electing, or signing labor contracts with an individual holding a managerial position in the company, the company needs to comply with the provisions of the law and the company's charter to exercise the proper authority and procedure.

Meanwhile, when reviewing the provisions of the Enterprise Law, we do not find any regulations regarding the appointment, election, or signing of labor contracts with the legal representative of the company. Instead, the authority to decide on changing the legal representative is indirectly demonstrated through the provisions on business registration. Specifically, when changing the legal representative, the company must submit an application to register the change of legal representative. It is worth noting that the composition of the application file according to the provisions of Article 50 of Decree 01/2021/ND-CP includes resolutions and certified copies of minutes of the meeting of the General Meeting of Shareholders regarding the change of legal representative in cases where the change of legal representative affects the content of the company's charter; or resolutions and certified copies of the meeting minutes of the Board of Directors in cases where the change of legal representative does not affect the content of the company's charter. According to this regulation, if the company issues a decision to appoint a legal representative, this decision seems to be a "derivative" decision from the resolutions of the General Meeting of Shareholders or the Board of Directors of the company regarding the change of legal representative, according to the specific purposes of each company.

At the same time, through the above provision, it can be seen that the authority to decide on changing the legal representative of the company is indirectly regulated under the General Meeting of Shareholders or the Board of Directors of the company.

Some suggestions for companies

The Enterprise Law 2020 has made adjustments towards clearer provisions that the company's charter is not necessarily required to specify detailed information about the legal representative beyond the number, title, and rights, obligations of the legal representative of the company, dividing the rights and obligations of the legal representative in cases where the company has more than one legal representative. Therefore, to facilitate changing the legal representative, the company may not need to include detailed personal information of the legal representative in the company's charter. Instead, the company's charter only needs to show the managerial title held by this individual. In this case, if the company changes the legal representative without changing the managerial title of the legal representative according to the company's charter, the decision-making authority will belong to the Board of Directors of the company instead of the General Meeting of Shareholders because at this time, the content of the company's charter remains unchanged.

In addition, to avoid the company having to pass resolutions of the General Meeting of Shareholders when wanting to change both the managerial title and the new legal representative. The company may anticipate and stipulate in its company's charter the direction that managerial positions may be held by the company's legal representative. If regulated in this direction, when the company changes its legal representative, as long as the new legal representative still holds the managerial titles specified in the company's charter, the company only needs to pass a decision of the Board of Directors.

In summary, changing the legal representative may be a frequent need and also a governance issue for many companies. To ensure that this procedure is carried out correctly according to legal regulations, the company's charter, while still creating convenience and efficiency in governance activities, companies need the necessary flexibility in their internal regulations, especially regulations in the charter, documents considered as the "Constitution" of the company.

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