An enterprise (except for private enterprises) is an organization with the status of a legal entity, which exercises its rights and obligations through a legal representative. The position of the legal representative, which plays an important role, always requires stability that serves the operation of the enterprise. However, in many cases, the position may change frequently according to the needs of the company or personnel fluctuations. Therefore, in order to effectively improve corporate governance, avoid unnecessary intervention by the company owners, and still comply with the law when changing the legal representative, companies need to have flexibility in their internal regulations. In this article, the author will analyze some issues related to the change of a company's legal representative and provide advice to companies in drafting internal regulations for these anticipated situations. In order to provide the most focused and useful opinions, we will limit the scope of this article to joint-stock companies (hereinafter referred to as "company").
Does the legal representative of a company have to be a manager of the company?
The Law on Enterprises stipulates that the legal representative of a company is a person who represents the company for the purpose of performing the rights and obligations arising from the company's transactions and other activities. According to this provision, the Company Law does not directly stipulate whether the legal representative must be a director. Otherwise, Clause 2 Article 12 of the Law on Enterprises 2020 provides: "The articles of association of an enterprise shall determine the number, management positions, and rights and obligations of the legal representative(s) of the enterprise".
Thus, the question arises whether the term "managerial positions" in the above provisions means that the legal representative must be the manager of the company.
According to the Law on Enterprises, the manager of a joint-stock company is defined as the chairman of the board of directors, members of the board of directors, director or general director, and persons holding other managerial positions as specified in the company charter. This means that the company has the right to establish other managerial positions in the company's charter, and the holders of these positions are considered to be company managers.
In our opinion, although it is not directly stipulated, the Law on Enterprises requires that the executive positions of the legal representative should be specified in the company charter. It can be understood that the legal representative is also the manager of the company.
Decision-making authority for the change of the legal representative
The fact that many companies may not have a proper understanding of the regulations on the decision-making authority to change the legal representative under the laws leads to the issuance of many decisions that do not have a legal basis. In particular, as mentioned above, the legal representative is also the manager of the company. Thus, some companies change their legal representative by issuing a power of attorney. It is worth noting that although the legal representative will simultaneously hold one or more managerial positions of the company, it is necessary for companies to separate the legal status of this person in each different role.
As a manager of the company, depending on the managerial positions held, they can be appointed, elected or signed an employment contract by competent persons and corresponding in the company. The Law on Enterprises 2020 also explicitly 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 employment contracts with individuals holding managerial positions in the company. Therefore, when appointing, electing or signing a labor contract with an individual who holds the role of a company manager, the company must consider the laws and the company charter in order to properly apply the authority and order.
Meanwhile, when reviewing the provisions of the Law on Enterprises, there are no regulations on appointing, electing or concluding employment contracts with the legal representative of the enterprise. Instead, the authority to change the legal representative is indirectly regulated through the regulations on business registration. Specifically, in order to change the legal representative, the company must submit an application to change the legal representative. It is worth noting that the components of the application, as regulated in Article 50 of Decree 01/2021/ND-CP, include a resolution and a copy of the minutes of the general meeting of the company on the change of the legal representative. If the change of the legal representative changes the content of the company charter, or the resolution and a copy of the minutes of the meeting of the company's board of directors, if the change of the legal representative does not change the content of the company charter. Accordingly, if the company issues a legal representative appointment, this decision seems to be only a "derivative" decision from the meeting minutes of the general meeting of shareholders or the board of directors’ corporate governance on changing the legal representative, according to each company's purposes.
At the same time, it can be seen from the above provisions that the authority to decide on the change of the company's legal representative is indirectly granted to the general meeting of shareholders or the board of directors of the company.
Some solutions for companies
To be flexible in corporate management and avoid the need to convene the general meeting of shareholders to approve a decision to change the legal representative, especially for companies with a large number of shareholders and frequently changing legal representatives. At the same time, in order to optimize corporate governance by promoting the role of the board of directors, the company should consider granting the board of directors the authority to make a decision on changing the legal representative. In order to do so, the company must comply with the provisions of the Law on Enterprises regarding the requirements for the company charter when regulating the legal representative.
In particular, the Law on Enterprises 2020 has made explicit changes to the fact that the company charter does not necessarily stipulate specific information about the legal representative, such as the number, title and rights and obligations of the legal representative of the company; division of the rights and obligations of the legal representative in case the company has more than one legal representative. Therefore, in order to conveniently change the legal representative, the company may not need to include detailed information on the personal identification of the legal representative in the company charter. Instead, the company charters need only indicate the managerial positions held by that person. At that time, if there is a change in the legal representative, but there is no change in the managerial position of the legal representative according to the company charters, the decision-making authority will belong to the board of directors instead of the general meeting of shareholders, since the content of the company charter remains unchanged..
Another essential point to consider is to avoid the company having to approve a decision of the General Meeting of Shareholders when it wants to change the managerial positions that the new legal representative holds. The company can anticipate and stipulate in the company charter that managerial positions may be held by the company’s legal representative. If prescribed as mentioned direction, when the company changes its legal representative, as long as the new legal representative still holds the managerial positions in the list of managerial positions specified in the company charter which will be held by a legal representative, the company shall only get the approval of the decision of the Board of Directors.
In conclusion, the change of legal representatives can be a frequent necessity and also a management challenge for many companies. In order to ensure that this procedure is carried out in accordance with the law and the company charter, while at the same time creating comfort and efficiency in the management activities, the company must have the necessary flexibility in its regulations and in its internal rules, in particular in the provisions of the company charter, the document considered as the "constitution" of the company.
