1. KEY COMMENTS ON THE ENTERPRISE LAW
N Issues Analysis Proposals
1. Orientation to build the EL In our view the EL should be built
similar to the making of new Labor
Code i.e. - as detailed and
comprehensive as possible. This is
to avoid a fact that the Government
and ministries may issue by-laws
content of which goes against the
spirit of the EL.
2. Clear limitations to State bodies’
authority
The EL only generally prohibits
State bodies and State officials
from “causing any delay, trouble,
obstruction, or difficulty to
persons requesting business
registration or to the business
activities of enterprises”. The
enforceability of such “in-
principle” provisions has been so
far proven relatively weak.
The EL to clearly state specific
circumstances/situations under
which State bodies may reject
requests of enterprises (i.e. -
incomplete application dossiers,
etc.). For example, the EL to
strictly prohibit State bodies from
requesting for
documents/information which are
not specified by the EL.
In our view, as long as the EL is
clear on what State bodies can do,
it will be easier for investors to
identify responsibilities of the State
bodies and its officials including
initiation of lawsuits against them.
3. Special laws (“luat chuyen nganh”)
prevail in case of inconsistencies
with the Enterprise Law (the “EL”)
with respect to operations and
management of enterprises
As a matter of practice, the EL has
been easily “neutralized” by new
conditions on operations and
management under “special” laws
(e.g. - in the form of “baby
permits”).
The EL itself to make an exhaustive
list of “special laws” at this stage
as, in our view, to date, major
special laws have already been
issued. Implementation of future
“special laws” with respect to
enterprises’ operations and
management, if any, must be first
subject to amendments of the EL.
4. Enterprises to ensure “the amount
of its legal capital” during their
operational terms
This request is impractical as legal
capital, which is evidenced by
shareholders’ capital contribution
To remove this “lifespan
guarantee” requirement. If State
bodies concern that investors seek
2. to the company’s charter capital,
will be converted into assets of
enterprises for business purposes.
Given the current situation of real
estate market in Vietnam, if this
requirement is enforced, most of
real estate companies will be
dissolved.
to go around this provision by
injecting money to their companies
and then withdraw the same, their
acts can be challenged by other
provisions of the EL i.e. – validity
of related party transactions,
falsified transactions, etc.
5. The Government being in charge of
proposing, changing or removing
business conditions
The fact that Government’s decrees
are drafted and proposed by
ministries has resulted in the
booming of “baby permits” or
“baby’s baby permits” for the time
being.
The EL itself to provide an
exhaustive list of sectors will be
subject to business conditions and
the Government is responsible for
detailing the licensing process
only.
6. Satisfaction of business conditions
during the enterprise’s operational
term
Similar to 4, while it is
understandable that a restaurant
must always satisfy sanitary
conditions when providing foods to
customers, it appears impractical,
at least from an accounting
perspective, to request a real estate
company to always have VND4
billion during its lifespan.
To exclude “legal capital” from this
“during lifespan” requirement
7. “Prohibited acts” including “to
operate illegally”
These two concepts are totally
different in that the former’s
meaning is much narrower than
that of the latter. Given legal
consequences of such “prohibited”
transactions, deceitful
businessmen may easily take
advantages of this provision to
avoid their contractual obligations
by requesting court to invalidate
contracts.
To remove globally
8. Validity of contracts a party to
which has not registered respective
“normal” business lines (i.e. - not
conditional businesses) at the time
of execution and performance
Conflicts exist between the EL/the
Civil Code and Resolution 04 of the
Supreme Court (2003) on whether
such a failure could amount to
invalidity of a contract (i.e. - on the
ground of “prohibitory provisions”.
This relates to point (5) above as to
whether “operating illegally” or
“violating the laws” (i.e. - carrying
out unregistered business) can be
ultimately treated as “prohibited
activities” which subject to
invalidity of a contract. In our
view, such a failure should not be
3. ended up in these serious legal
consequences. This is more critical
as enterprises in principle have the
maximum freedom to carry out any
“normal” business as their natural
rights (Please see Section 10 below
for further information).
9. Multiple legal representatives Conflicts with the Civil Code on a
single legal representative being
the “head” of the organization
(Article 145 and can cause third
parties to be confused without
public access to company’s
corporate information.
10. Validity of pre-establishment
contracts signed by the promoters
No provisions on fiduciary
obligations of the promoters - i.e.
the promoters take advantages of
his position to sign “unusual”
contracts.
To set out obligations for the
promoters to sign such contracts
i.e. - not for his benefits or at arm
length basis, etc.
11. “Investment project” requirement Without clear guidance, the foreign
acquisition in local companies can
be subject to a complicated
licensing process under, among
others, the Investment Law.
To make it clear that no investment
project is requested when a foreign
entity acquires a local company
regardless of whether the latter
owns an investment certificate at
the time of acquisition.
12. Business lines stated in the
business registration
No need to state specific business
lines in the ERC if enterprises have
freedom to carry out all activities
other than prohibited or
conditional businesses.
In addition, the licensing process
for changing the ERC with respect
to normal business lines is a
nightmare for many FIEs.
The ERC to refer business lines to
the enterprise‘s charter.
Nevertheless many other existing
“special” laws are now treating an
ERC which clearly states specific
business activities as a part of an
application for “baby permit” or
one of conditions for carrying out
the relevant special businesses.
Thus, the “implementation
effectiveness” part of the EL must
therefore clearly “invalidate” or
“remove” such requests of these
special laws.
13. Authorizing shares (i.e. - shares
that the company may issue in
As the general meeting of
shareholders (“GMS”) of a
To remove
4. future) shareholding company can freely
decide shares to be issued from
time to time, no need to refer to
authorizing shares which can cause
misunderstanding about the
capitalization of a shareholding
company
14. Enterprise’s charter As a matter of fact, some State
bodies strongly request enterprise
to use their poorly-drafted
standard charter
To strictly prohibit State bodies
from issuing standard charter
15. Content of ERC Licensing authorities often
arbitrally add new content to the
ERC or investment certificate
To strictly prohibit licensing
authorities from adding any
content other than those stated by
the EL itself.
16. Amendment of ERC Licensing authorities often
arbitrally refuse to issue amended
ERC on ground of, among others,
the applying enterprise’s business
performance.
The EL to clearly (i) state specific
grounds for enterprises’
application for amended ERC to be
refused (i.e. not complete or
failures to prove its satisfaction of
business conditions, etc.) and (ii)
prohibit licensing authorities’ from
referring to other grounds for the
amendment purposes.
17. Representative office and branches Unclear as to specific activities that
representative offices and branches
can do
To make these point clearer as in
the case of representative offices of
foreign merchants.
18. Apparent authority The Civil Code and the EL limit to
the authorized representative(a) in
a sense that he/she is the person
directly authorized by the legal
representative. This remains to be
seen as to how an enterprise is
liable for acts of its staff other than
the authorized representative (e.g.
- a cashier in a bank).
To address this point
19. “Duties” vs. “obligations” vs.
“responsibilities”
These concepts are used
interchangeably in the EL.
Regarding “duties” (i.e. officers’
duties), this is a relatively new
To globally change to “obligations”
(i.e. - a work that someone must do
on a contractual or legal basis) or
“responsibilities” (i.e. - a work that
5. concept and may therefore conflict
with other laws which deal with
obligations only (i.e. - the Penal
Code, the Civil Code or the Labor
Code, etc.)
someone must do if he/she fails to
perform his/her obligations).
20. Full payment of capital Lack of criteria to decide whether a
member/shareholder has fully paid
its committed capital.
To request for evidence in the form
of bank slips to enterprises’ bank
accounts
21. Piercing corporate veil in case of
inadequate capitalization
The draft EL requires defaulting
members to be responsible for
damage in proportion with their
actual capital contribution. This
may conflict with the principles of
compensation for damages under
other legislations (i.e. - actual and
direct payment)
To request the defaulting members
to jointly pay full compensation for
damages they caused to the
enterprise.
22. Derivative suits (i.e. - shareholders’
suits against officers on behalf of
the enterprise) - Company has to
pay “suing expenses” regardless of
the result of the suits.
Conflicting with the Civil Code,
Civil Proceedings Code and the
Arbitration Law with respect to the
losing parties’ obligations and
encouraging minor dissidents to
give troubles to the enterprise
To make clear about specific
situations. That is, what costs (i.e. -
formal proceeding costs or
attorney fees and under which
circumstances (i.e. - company or
the sued officers win). For
example, the losing party (i.e. - the
company in this case) must pay
“formal proceeding costs” but the
company should have the rights to
claim the passive shareholders for
reimbursements including attorney
fees.
23. Conditions for payment of buying
back shares at the request of
dissident shareholders
The condition of “company being
able to pay debts after payment” is
too general and can be taken
advantages of by the company.
To revise to “the company is able to
pay debts due after payment
[within the respective fiscal year]”
24. Voting ratios (65% and 75%) Failing to reflect international
practice, Vietnam’s WTO
commitments and clearly violating
the principles of equal treatments
among all enterprises regardless of
their origins of ownership (Article
5.1 of the EL)
To reduce to 51%
6. 25. Invalidity of related party
transactions in a single member
LLC if not carried out on a “market
price” basis
Hard to identify “market price” of
such transactions, especially in
niche markets. In addition, these
transactions should only be dealt
with from a tax perspective (i.e. -
the transfer pricing issues)
To remove this requirement
26. Sales of shares of founding
shareholders
Subjecting the transfer of shares to
GMS’s approval only can result in
deadlock if the latter rejects the
sales
To apply the “rights of first refusal”
as in the case of transfers of shares
in multi-member LLCs.
27. Private placement being subject to
the licensing authority’s opinions
Can be blocked by the licensing
authority without proper reasons
To limit specific
circumstances/grounds the
licensing authority has the right to
oppose.
28. Amendments of charter subject to
GMS’ approval
Some content of the charter are
subject to approval of the BOM
already (i.e. - changes of details of
the legal representative or head
office)
Exclude issues to be decided by the
BOM (i.e. - changes that do not fall
inside approval authority of the
GMS)
29. Cumulative voting Unclear as to whether the
“cumulative voting” is AGAIN
subject to the normal voting (i.e.
65% or 75%). Local courts tend to
explain the 65% and 75% will be
applied.
To make this point clear
30. BOM appoints one of its members
or hires an outsider to be the
enterprise’s general director
Violating Vietnam’s WTO’s
commitments on intra-corporate
transfer (i.e. appointment of a
NON-BOM member).
To reflect regulations of the Labor
Code and Vietnam’s WTO
Commitments.
31. Reference of corporate suits to
Civil Proceeding Codes
Limit the rights of parties to select
the dispute settlement bodies
including arbitration bodies
32. Conflicts with special laws A number of provisions of the draft
EL conflicts with other laws
especially:
• The Civil Code: level of
compensation; invalid
transactions
7. • Labor Code: dismissal of
general director and his/her
official terms in comparison
with provisions of the Labor
Code on “labor disciplines”
and “material
responsibilities”.