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March 2, 2021

Vietnam Issues Guidance on Business Registration under New Law on Enterprises

Informed Counsel

When Vietnam’s new Law on Enterprises of 2020 (2020 LOE) came into effect on January 1, 2021, the implementing regulations for corporate matters guiding the now-repealed Law on Enterprises of 2014 ceased their effectiveness, per principles under the laws on promulgation of legislative documents. As a result, governmental bodies and enterprises have been awaiting the issuance of new implementing regulations that will apply to the 2020 LOE.

The first major guidance arrived on January 4, 2021, when the government issued Decree No. 01/2021/ND-CP on enterprise registration (Decree 01), which replaces Decree No. 78/2015/ND-CP dated September 14, 2015 (Decree 78) on the same matter. This article discusses some notable points of Decree 01 in comparison to Decree 78.

Operating Status of Enterprises

Decree 01 sets out seven possible legal statuses under which an established enterprise may be classified in its profile on the National Business Registration Portal (NBRP), which is available for public access:

  1. Active;
  2. Business temporarily suspended;
  3. No longer in business at the registered address;
  4. Enterprise registration certificate revoked due to decision issued by tax authority;
  5. In dissolution process, divided, merged, or acquired;
  6. In bankruptcy process; and
  7. Dissolved, bankrupt, or ceased to exist.

By default, the status of a company is active. The status will be updated to one of the other options in the NBRP when the respective licensing procedures are completed at the provincial Department of Planning and Investment (e.g., for temporary suspension of business or initiation of dissolution process), or according to the decision of the relevant authorities (e.g., for bankruptcy).

The previous Decree 78 did not provide detail on the available status options. The common statuses observed on the NBRP before the enactment of Decree 01 were “active,” “business temporarily suspended,” “locked” (akin to the current “in dissolution process”), and “dissolved.”

This change will make it easier for a third party to identify the operating status of a target company for a potential acquisition, legal due diligence, and so forth.

Signing of Application Documents by Legal Representative

For limited liability companies and joint stock companies with multiple legal representatives, documents for licensing purposes can be signed by any of the legal representatives, provided they undertake that they are doing so in accordance with their assigned duties as set out under Article 12.2 of the 2020 LOE, which requires that if there are multiple legal representatives, the charter of the company must specify the rights and obligations of each legal representative. If there is no such specification, each and every legal representative is considered a duly authorized person of the company vis-à-vis a third party.

The assurance that the legal representative signing the application documents is doing so in accordance with these provisions may aim to eliminate any responsibility of the licensing authorities who receive such documents if any wrongdoing of the signatory is uncovered after the application is approved.

Further, affixing the corporate seal is now optional for the prescribed forms, decisions, and meeting minutes that are required to be submitted in the application dossier. Other supporting documents may still need to be stamped if required under relevant laws.

For documents for non-licensing purposes such as contracts, strictly viewed, the signatory (for example, a legal representative) can only sign on those which are duly conferred to him or her under the charter of the company or otherwise. However, it is worth noting that the Civil Code of 2015, to a large extent, introduced the doctrine of apparent authority to recognize the validity of contracts which have been entered into by unauthorized persons.

Temporary Suspension of Business

In 2020, the COVID-19 pandemic forced many companies in Vietnam to temporarily suspend operations due to government restrictions (e.g., restaurants and theaters), lack of customers (e.g., travel companies and hotels), or other reasons, calling new attention to the regulations on business suspension.

Under previous regulations, an enterprise could apply for multiple periods of temporary suspension of up to one year each. However, the maximum consecutive duration of temporary suspension for a business, including any extensions, could not exceed two years.

This limit appears to have been lifted, as the maximum two-year period is no longer provided in Decree 01. In other words, an applicant can apply any number of times, each time with a one-year limit, for a temporary suspension of business.

Once an enterprise has notified the business registration office of its temporary suspension of business, such status will be updated on the NBRP for the company and all of its dependent units (branches, representative offices, business locations). It is worth noting, however, that even if an enterprise has properly suspended its business, it is still required to honor its due obligations (financial and other) under the relevant contracts or laws.

Business Registration Offices

Previously, in Decree 78, Hanoi and Ho Chi Minh City were given autonomy to open up to two additional business registration offices, apart from the customary office. Decree 01 abolishes this provision without giving a reason. Though the consequences of this are uncertain, it might lead to some backlog in the business registration offices of these major cities in the short term.

Outlook

New laws and regulations on companies and investment in Vietnam are issued at a fairly rapid pace, replacing the old versions. This causes certain concerns among businesses and lawyers about the lack of stability of legislation and well as the time and resources to follow the new legislation. However, one of the key notable bright spots of the change is the new legislation normally brings more flexibility and options for businesses. The foregoing changes in Decree 01 are a clear example.

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