Monthly Legal Update – February, 2015

The new remarkable points of Law on Enterprise 2014

Nguyen Thu Huyen – Associate
Duong Lan Huong – Attorney at Law
Le Duy Hieu – Legal Assistant

With the target to attract and mobilize more and more capital and resources for manufacturing activities and doing business, after months of revision and taking advice nationwide, the
draft of new Law on Enterprises (“new LOE”) has officially been approved on 26 November 2014 with numerous essential changes which, hopefully, will serve as a turning point for the economy of Vietnam. Briefly, the new-born LOE is evaluated as an effective tool to (i) minimize both commercial and legal risks in doing business in Vietnam; (ii) create fair conditions among enterprises of all economic sectors; and (iii) reform the administrative procedural system in terms of its simplicity and transparency.

Business line(s)

One of the remarkable changes of the new LOE is the recognition of the freedom to perform business lines which are not prohibited by laws, together with the removal of the contents on business line(s) in the Enterprise Registration Certificate (“ERC”). This change facilitates enterprises in flexibly making important decisions on implementing new manufacturing, business activities as well as promptly grasping more business opportunities.

However, the new LOE still requires the business line(s) to be provided in the application for enterprises registration, and after the issuance of the ERC, the enterprises are obliged to publish the registered information which include the detailed business line(s). Besides, enterprises must also inform the business registration authority within 10 days after the adjustment of their business line(s). As a result, the authority still controls the business line(s) of enterprises, and enterprises’ partners could look up information about business lines via the National Business Registration Portal before deciding to conclude a business deal.

The schedule for capital contribution of the members of LLC

Regulations on the schedule for capital contribution of members of LLCs, which are currently provided in Decree 102/2010/ND-CP dated 01 November 2010 of the Government detailing the implementation of a number of articles of the current LOE, are officially incorporated in the new LOE with a shorter term of 90 days, instead of 36 months as before. Accordingly, this term now is equal to the schedule of which shareholders in JSCs must pay for the subscribed shares, creating the consistency and fairness in the regulations of capital contribution obligations between LLC’s members and JSC’s shareholders.

Legal representatives

New regulations on increasing the number of legal representatives in LLCs and JSCs are one of the oustanding points. Accordingly, these enteprises are allowed to have more than one legal representative; the quantity, executive positions, rights and obligations of the legal representatives shall be stipulated in the enterprises’ Charter. The new regulation ensures the continuous operations of entperises in case there is any incident occured to the legal reprsentative, as well as creates a fair mechanisime for each shareholder or member to have its own appointed legal representative.

In case of having more than one legal representative, enterprises must ensure at least one of them is resident in Vietnam. If there is merely one, this legal reprsentative must be resident in Vietnam and upon his/hẻ exits from Vietnam, the authorization to others to implement the his/her rights and obligations must be made, concurrently, the legal reprsentative is still liable for the authorized the rights and obligations. Besides, the new LOE provides detailed guidance for settlmement of circumstances in which the authorization is expired or no authorization is made.

Regarding the Seal

Similar to the provisions on the legal representatives, the new LOE allows enterprises to actively decide on the form, quantity and contents of the seal provided that the name and number of the enterprises must be shown. Under this provision, the enterprises can have more than one seal, however, it is not clear whether the enterprise can decide not to use the seal. Accordingly, it is waiting for official guidance of the Government on this issue.

In addition, new LOE provides that seals shall be used in cases prescribed by laws or in the transactions having agreed on the use of seals by the involved parties. This regulation is in accordance with the recognition of the validity of electronic signatures or signatures without the seal under the provisions of other specialized laws, for instance tax declaration or tax finalization requires only the electronic signature without seal.

The percentage of majority voting

As for JSCs, the minimum majority voting for adoption of the resolutions, decisions of the General Shareholders Meeting regarding special issues is decreased to 65% and 51% for the other ones, instead of 75% and 65% under the current LOE. The new regulation is consistent with the commitment of Vietnam when joining the WTO which allowed applying the rate of 51% for some specific provisions of LOE and at the same time is consistent with the domestic and international practice.
Regarding LLCs, the minimum majority voting for adoption of the decisions of Members’ Council remains 75% for important issues and 65% for common ones, “except otherwise provided in the Charter”. This regulation is still unclear whether businesses have the right to prescribe a lower rate than 75% and 65% or not. Besides, decisions of the Members’ Council shall be approved in the form of consulting opinions in writing by a number of members owning at least 65% or the charter capital, as adjusted from 75% in the current LOE.

Establishment procedure of enterprise

New LOE has modified the procedures and documents for enterprises registration in accordance with the change of the new Law on Investment 2014 (“new LOI”), namely the new LOE has separated the ERC and Investment Registration Certificate (“IRC”), instead of the curent stipulation in LOE that IRC is also the ERC; simultaneously, IRC of foreign investors (if any, under the provisions of the new LOI) is one of the documents in the dossiers for establishment of enterprises.

Under the new regulations, foreign investors to establish economic organizations in Vietnam must carry out the procedure to obtain the IRC and then proceed the procedure to obtain the ERC. This change increases the procedures for foreign investors for the first time investing in Vietnam under the form of economic organization. However, this change is considered as a development of the new LOE and LOI in cicumstances under which requires only the amendment of one certificate.
One more highlight regarding the business registration dossiers is “judicial record” in cases the business registration authority has requirements in order to control situations where the individual has no right to establish and manage enterprises in Vietnam. However, new LOE does not specify the circumstances or the basis for business registration authority to render such requirement.

As a reformable point for the administrative procedures, the consideration for granting the ERC by the business registration authority shall take only 03 working days from the date of receipt of a valid application, instead of 05 working days according to current regulations.

State Enterprises

Under the new LOE, state enterprises are defined as those fully owned by the State, instead of more than 50% as prescribed previously. Enterprises with less than 100% of capital possessed by the State shall be classified as JSC or LLC of two or more members.

In addition, there is a new chapter in the new LOE providing the management and information publishment of State enterprises. Under these regulations, the organisation and management shall be decided by the owners’ representative agency pursuant to one of the two models of organization, management and operation of a one member LLC owned by an organization; at the same time, State enterprises are also liable to publish their information regularly on websites of the enterprise and of the owners’ representative agency; and pubish in its websites, head quater and the location of doing business all extraodiranry information (for instance, blockage of bank account, cease of operation…) within 36 hours from the occurrence.

Social enterprises

The new LOE recognizes the legal existance of social enterprises alongside other forms of enterprises. Accordingly, being a social enterprise if its operation purpose is for settlement of the issues of society, environment and for interests of community. Social enterprises shall be subject to certain rights and obligations in addition to those of a normal enterprise. The regulations on social enterprises re-assures the encouraging policy of the Goverment to this form of enterprise which shall be specified by Government’s Decrees.