Within the scope of this article, we would like to discuss the joint liability, or in other words, whether the Legal Representatives (“Representatives”) are jointly liable for any damage to the enterprise which they represent or not. In our opinion, a lot of enterprises will be confused when applying the rule “An enterprise may have many legal representatives”.
Previously, the Law on Enterprises 2014 allows enterprises to have one or more than one legal representative, which facilitates enterprises wishing to reduce the workload of their current legal representatives or increases control over essential corporate affairs. The Law on Enterprises 2014 does not discuss further about the liability of each Representative if there is any damage to the enterprise.
The Law on Enterprises 2020 resolves this matter by requiring an enterprise having more than one legal representative to have its charter “specifies rights and obligations of each legal representative. In case the division of rights and obligations of each legal representative is not clearly specified in the company’s charter, each legal representative of the company will be the fully authorized representative of the enterprise in front of a third party; all legal representatives are jointly liable for any damage caused to the enterprise in accordance with the civil law and other relevant laws.” cited from Article 12.2 of the Law on Enterprises 2020.
The problem arises if the charter does not clearly specify the rights and obligations of each Representative as mentioned above, the decision of one Representative will be construed as the decision of the remaining Representatives and implicitly the Representatives will be jointly responsible before the company and the law even though such content or document is decided by only one Representative. This joint responsibility will not be imposed when the charter clearly specifies the works and authority of each Representative. Accordingly, a Representative is solely responsible for any damage arising from such Representative’s decision, excluding the liability of the remaining Representatives who do not participate in that decision.
In order to separate the rights and responsibilities of each Representative, the enterprise’s charter must clearly show the works of each representative, the scope of authority, the handling mechanism when a Representative is absent, etc., such regulations should be clearly stated in the charter, which is also convenient for the enterprise when working with its partners, state agencies. In fact, when realizing that an enterprise has many Representatives, a related party will require the related document or contract be signed by all Representatives to protect their interests, if the enterprise’s charter does not have a clear division.
All of our sharing is preliminary generalizations, depending on each activity of enterprises such as services, production, import-export, etc. so that the corresponding contents will be further detailed. Should you have any questions, please contact us.