“Ring-fencing the Entity–Representative Dichotomy: A Tenet for Soaring Private Sector Economy”

A tale is told of Mr. V., who served as the legal representative and chairman of the board of a joint-stock company. As the company’s performance declined and his own passion waned, Mr. V. decided to resign, divest, and sever all legal ties with the company. However, on a fine day, Mr. V. learned that his overseas trip had been temporarily suspended. It was then that he found out that the company owed taxes and, as the legal representative, he was subject to temporary suspension of overseas travel.

Companies, too, are independent legal entities.

In the eyes of the law, a company is regarded as a legal entity or an independent person. Looking back, the concept of corporate legal personality emerged from the natural needs of individuals facing business opportunities. Indeed, if an entrepreneur invests money in a business and is held responsible for it, they would inevitably feel apprehensive. Aside from the risk of losing their entire capital, there is also the potential impact on their family. This very need gave rise to the concept of a separate business entity, independent from its founder.

In reality, this independence is not merely a figment of imagination. It is observed that many business organizations possess their own thoughts and will, distinct from the wishes and thoughts of their members. In other words, these organizations seem to take on a life of their own, independent of the individuals within them.

Although a company is considered a person, it is an invisible one without a physical body. Hence, to truly “live” and engage in transactions, a legal entity must have a representative. Business laws refer to this person as the legal representative, who has the power and responsibility to act on behalf of the company in legal matters such as signing contracts and participating in litigation…

Company and Representative: Two Separate Entities

Every company must have a legal representative. However, the representative is not the same as the company itself. As mentioned, a company is considered an independent entity. Therefore, the representative is only seen as acting on behalf of the company and operating under its name. Consequently, if a company wrongs a third party (be it a consumer or the tax authority), even if it is due to the negligence of the representative, the company must first take responsibility towards the third party, and only then can it address the matter internally with the representative.

Overall, since the country’s first Company Law, the provisions regarding legal representatives have become increasingly specific and tend towards separating their responsibilities from those of the company. From a lack of separate clauses, the 2014 and 2020 Business Laws now recognize the role and responsibilities of legal representatives in managing enterprises. Notably, the law requires representatives to exercise their rights and obligations diligently and in the best interests of the company.

However, this spirit and principle are not consistently applied in law enforcement. There are still cases where the role of the legal representative is understood as inseparable from the entity they represent.

Legal Representative in a Bind

Returning to the story at the beginning, despite Mr. V.’s multiple written explanations to the tax authority and the business registration agency, along with meeting minutes and board decisions proving his departure from the company years ago, there has been no positive outcome. As of now, Mr. V. remains on the list of those temporarily suspended from overseas travel as he is still recognized as the company’s legal representative.

Mr. V.’s suspension is partly the company’s fault for not complying with the business registration agency’s regulations. However, the application of this suspension seems to indicate that the authorities are equating the company’s responsibility with that of its legal representative.

As mentioned earlier, a company is an independent entity, and so its responsibilities should also be independent of any individual. In reality, only the company itself owes taxes; the legal representative does not run the business, nor do they directly profit from it, and therefore, they do not owe taxes in their personal capacity. Whether the representative is at fault in the management of the company is an internal matter between them and the company.

Therefore, if we adhere to the principle of separating the roles of the legal entity and its representative, this suspension measure is inappropriate. Unfortunately, this approach is currently trending, causing no small amount of concern among entrepreneurs.

Awaiting the Resolution’s Implementation

The principle of separating the responsibilities of a legal entity from those of an individual, or more simply, between a company and its management, is one of the pillars of recognizing corporate legal personality. Ignoring this principle also means disregarding the recognition of companies as a component of the national economy. Hence, it is no surprise that Resolution No. 68-NQ/TW on private sector development emphasizes the task of adhering to this principle when handling violations: affirming the clear distinction between the responsibilities of legal entities and individuals. Resolution 68 reflects the consistent orientation of the State in creating a safe business environment and encouraging entrepreneurs to confidently contribute to economic development.

The emphasis in Resolution 68 allows us to anticipate that this principle will be more strictly adhered to and, more importantly, promptly implemented in business practices. Accordingly, coercive measures may be designed to focus solely on the violating entity, such as deducting money from their account, freezing their account, or suspending their invoice usage. The general approach should prioritize voluntary compliance and allow the company to provide explanations, rather than imposing immediate restrictions at the first sign of a violation. For legal representatives, coercive measures should only be applied if there is a basis to believe that they intentionally violated the law, directly committed the act, or failed to cooperate with the authorities.

Just as the 1986 renovation policy was considered a powerful transformation that opened up positive new directions for the national economy, Resolution 68 on private sector development is expected to be a refreshing stream, propelling the private sector towards the open sea and contributing to the nation’s leap forward. With a resolution issued in this era of national advancement and carrying such high expectations, we also have the right to anticipate that law enforcement agencies will make appropriate changes to ensure that the Resolution and its underlying principles are promptly implemented.