Authorisation of individual MC members
An interesting issue that the Law on Enterprise raises is the distinction between "delegation" and "authorisation". Is it possible, for example, for the member council (MC) (as a collective organisation) of a limited liability company to authorise its power to the general director (GD)?(1)
This article shows that an MC decidedly cannot authorise its power to a GD; however, delegating power may be possible.
Under Vietnamese law, only natural persons, legal entities or organisations that do not comprise a legal entity may agree to authorise their powers to other persons. As the MC does not fall into those categories, it may not authorise its power to the GD or any other person. However, individual members of the MC can authorise their rights and obligations to the GD, including the right to vote on the power of attorney (POA). In this case, the POA is ratified only if:
- all four members of the MC (rather than the MC as a collective) make independent written authorisations to the GD; and
- the GD accepts the POA.
If the above principle has been accounted for, the POA constitutes an amendment and a supplementation to the company's charter. Therefore, for the POA to be ratified, a supermajority approval of the MC is legally required. Where the dispute goes to arbitration:
- the POA will be invalid if it is held to be a charter amendment, as it requires 100% approval; or
- the member who objects to the POA will have the right to trigger article 52 of Law on Enterprise to exit the company if the POA is not considered a charter amendment, but still has the equivalent effect.
The Civil Code regulates the regime of authorisation as follows:
Representation means a natural person or legal entity (the "representative") acting in the name and for the benefit of another natural person or legal entity (the "principal").(2) A representation can be authorized representation or legal representation.(3)
A natural person, a juridical person may authorize another natural or juridical person to enter into and perform a civil transaction.(4) Members of an organisation not having legal entity may agree to authorize another natural or juridical person to enter into and perform a civil transaction related to their common property.(5) (Emphasis added.)
It is clear under these regulations whether the relevant entities can be the principal in an authorisation relationship. As the MC is not a natural person, legal entity or an organisation that does not comprise a legal entity, the MC cannot play the role of a principal. Even if the MC is deemed as "an organisation not having legal entity", it may only authorise its power if all its members agree and the GD does not object. Therefore, the MC has no legal right to authorise its power to the GD or any other person.
Authorisation of individual MC members
The Law on Enterprise provides that:
[t]he authorized representatives of members being organizations must be individuals authorized in writing to perform their rights and obligations prescribed in this Law on behalf of such member . . . Authorized representatives must satisfy the conditions under the law.(6)
The company's charter also specifies the authorised representative of each member as below:(7)
The MC includes all Members and is the highest decision-making body of the Company . . . Each such Member who is a legal entity shall designate an Authorized Representative to participate in the MC. Each Member shall be entitled to exercise its rights by casting the number of votes in the MC that is in proportion to such Member's respective Interest Percentage.
Subject to these provisions and regulations, the GD (or other persons satisfying the legal conditions) can be the authorised representative of the members of the MC, in order to perform the members' rights and obligations, including the right to vote on the POA. Such authorisation is limited to the rights and obligations of each member and not the rights and obligations of the MC.
Does the POA constitute an amendment to the company's charter?
The Civil Code regulates on the organisational structure of juridical persons as follows:
Each legal entity must have an executive body. The organization, duties and powers of the management body of legal entity shall be stipulated in its charter or establishment decision.(8) Each legal entity may have other bodies as decided itself or as prescribed by law.(9) (Emphasis added.)
The Law on Enterprise regulates the organisational structure of a multi-member limited liability company as follows:
A multi-member limited liability company has a Member Council, a Chairperson of the Member Council, a Director/General Director.(10)
The Law on Enterprise also stipulates that the rights and obligations of a company's management are regulated under this law and by the company's charter.(11)
In this case, the company's charter should specify that its organisational structure includes the necessary persons.
Meanwhile, the POA mentions the functions and obligations of the MC, the GD and the DGDs but with certain differences in comparison with the company's charter. Further, the POA sets out the functions and obligations of some other positions, such as the human resources manager, which the company's charter does not contain. The positions that relate to the organisation, duties and powers of the management body of the company must be specified in the company's charter in accordance with article 83.2 of the Civil Code.
Therefore, the functions and obligations of the MC, the GD and the DGDs under the POA constitute an amendment to the company's charter. On the other hand, the contents of the POA that relate to the organisation, duties and powers of the company's management, but have not been mentioned in the company's charter, supplement the charter.
Except for the contents that must be specified in the company's charter, certain other elements in the POA may be specified in the company's internal rules or decided by the competent authority in accordance with the law and internal documents.
In order to avoid any misunderstandings, the application of the POA must not be contrary to the law on authorisation mechanisms and is considered as a "delegation" only when being specified in the company's charter. In such circumstances, the POA constitutes a de facto amendment and supplementation to the company's charter.
If the POA is held to be an amendment to the company's charter, the POA is invalid as it requires a supermajority vote.
If that is not the case, however, the Law on Enterprise specifies that:(12)
1. Every member is entitled to request the company to repurchase its capital contribution if such member votes against the resolution of the MC on amendments to the company's charter that are related to rights and obligations of members and/or the MC.
2. When such a request is made as prescribed in Clause 1 of this Article, if an agreement on the price is not reached, the company shall repurchase the member's capital contribution at the market price or at a price determined according to the company's charter within 15 days from the day on which the request is received. The payment shall only be made if the company is still able to repay its debts and settle other liabilities after paying for the capital contribution.
3. If the company does not repurchase the capital contribution as prescribed in Clause 2 of this Article, the member is entitled to transfer its capital contribution to another member or a person other than members. (Emphasis added.)
In this context, the POA is considered to have the equivalent effect of an amendment to the company's charter. Subsequently, MC members have the right to trigger article 52 of the Law on Enterprise and request the company to repurchase its capital contribution at fair market value (statutory stock option) to exit the company.
For further information on this topic please contact Net Le or Thi Thinh Vu at LNT & Partners by telephone (+84 28 3821 2357) or email ([email protected] or [email protected]). The LNT & Partners website can be accessed at www.lntpartners.com.
(1) Where the company is governed by:
- an MC;
- a chairman of the MC;
- an executive committee;
- a general director;
- two deputy general directors;
- a chief accountant; and
- other key positions and staff as determined by the MC.
(2) Article 134.1 of the Civil Code.
(3) Article 135 of the Civil Code.
(4) Article 138.1 of the Civil Code.
(5) Article 138.2 of the Civil Code.
(6) Article 15.1 and 15.5 of the Law on Enterprise.
(7) Article 18.1 of the company's charter.
(8) Article 83.1 of the Civil Code.
(9) Article 83.2 of the Civil Code.
(10) Article 55 of the Law on Enterprise.
(11) Article 56, 57 and 64 of the Law on Enterprise.