Selecting and appointing the appropriate legal representative of an FDI enterprise is not only a legal obligation but also a key factor in ensuring stable business operations and minimizing risks. This position is not merely a name on the business license; it serves as the “legal face” of the enterprise, bearing responsibility before the law for all activities of the company. In this article, KMC provides a comprehensive overview from concepts to strategic considerations, enabling enterprises to make informed decisions and optimize their governance structure.
What is the Legal Representative of an Enterprise?
According to Clause 1, Article 12 of the 2020 Law on Enterprises, the legal representative of an enterprise is an individual who represents the enterprise in exercising rights and performing obligations arising from the enterprise’s transactions. This person has the legal standing to request the resolution of civil matters and to act as plaintiff, defendant, or a person with related rights and obligations before Arbitration, Courts, and to exercise other rights and obligations in accordance with the law.
Simply put, the legal representative of an FDI enterprise has the following three roles:
“Legal Arm” in All Transactions
This individual directly signs economic and commercial contracts, bank loan agreements, or executes other arrangements on behalf of the company. Their signature creates binding rights and obligations for the entire enterprise.
“Legal Voice” Before Adjudicating Authorities
In the event of disputes, the legal representative acts as the plaintiff or defendant on behalf of the enterprise before Courts or Arbitration. They are responsible for presenting arguments, providing evidence, and complying with judgments or arbitral awards.
“Focal Point of Responsibility” with State Authorities
They represent the enterprise in working with authorities such as Tax, Customs, Planning and Investment, and Social Insurance agencies. All notifications and administrative sanctions (if any) are addressed to this position, for which they bear responsibility.
Comparison Between the Legal Representative of an FDI Enterprise and the Director/General Director
| Comparison Criteria | Legal Representative (LR) | Director/General Director (Director/GD) |
| Nature and Legal Basis | The legal representative of the enterprise, mandatorily stipulated under the Law on Enterprises. Serves as the “legal face” representing the company before the law | An authorized representative appointed by the Members’ Council/Board of Directors to manage business operations. |
Source of Authority | Arises directly from legal provisions (Law on Enterprises 2020). | Arises from appointment decisions, labor contracts, and authorization by the governing body (Owner/Board of Directors). |
| Primary Responsibilities | Highest legal responsibility: accountable before the law for all activities of the enterprise. Acts as plaintiff or defendant before Courts or Arbitration. | Operational and business responsibility: accountable for business performance, profitability, and implementation of approved resolutions and business plans. |
| Decision-Making Scope | Decides on key legal matters such as contract execution, bank borrowing, and major investment decisions (if authorized). | Decides on day-to-day operational matters such as issuing internal regulations, managing personnel, approving routine transactions, and implementing business strategies. |
| Number | The company may have one or more legal representatives (under the Law on Enterprises 2020). | Typically, the company has only one Director/General Director. |
| Specific Mandatory Conditions (FDI) | Must reside in Vietnam. | Not required to reside in Vietnam. May be a foreign individual who frequently travels or works remotely (if permitted). |
| Specific Mandatory Conditions (FDI) | In many single-member FDI limited liability companies, the legal representative often concurrently holds the position of Director/General Director to optimize authority and procedures. | In joint-stock companies or large corporations, these roles are often separated to enhance control, supervision, and transparency. |
Strategy for Selecting the Legal Representative of an FDI Enterprise
Step 1: Ensure a Solid Legal Foundation
First, the candidate must meet the mandatory conditions under the 2020 Law on Enterprises of Vietnam:
Full Civil Capacity
The legal representative of an FDI enterprise must be an individual aged 18 years or older with full civil act capacity.
Not Subject to Prohibition
The individual must not fall under prohibited categories from establishing or managing an enterprise, such as officials, civil servants, persons serving imprisonment sentences, or those prohibited by the Court from holding certain positions. FDI enterprises should note the requirement for a criminal record certificate when requested by the business registration authority.
No Personal Tax Code Suspension
The candidate must not have a suspended personal tax code due to outstanding personal tax liabilities or issues related to tax obligations of previously represented enterprises.
Residency in Vietnam
This is a critical requirement and also a challenge for many FDI enterprises. The legal representative must reside in Vietnam to ensure timely execution of documents and engagement with authorities. If appointing a foreign expert, the enterprise must ensure that the work permit and temporary residence card have sufficient validity.
Step 2: Define a Model Suitable for Ownership Structure
For Wholly Foreign-Owned Enterprises (WFOE)
A common approach is to appoint a foreign executive director who concurrently serves as the legal representative of the enterprise. This model centralizes authority and accelerates decision-making.
However, if the foreign director cannot meet residency requirements or if the enterprise seeks enhanced control, a capable Vietnamese individual may be appointed as the legal representative while the foreign director retains operational control. This structure ensures that the enterprise always has a “legal face” available locally.
For Joint Venture Companies
This position is often subject to negotiation among parties. To balance power, the appointment of the legal representative must be clearly stipulated in the Joint Venture Agreement/Company Charter.
In such cases, an effective solution is to apply the provision on multiple legal representatives under the 2020 Law on Enterprises. Each joint venture party may appoint one representative with clearly defined scope and authority.
Step 3: Assess Personal Competence and Cultural Factors
An ideal candidate for an FDI enterprise should possess the following attributes:
● Proficiency in Vietnamese laws and the local business environment
● Language skills (Vietnamese, English, Japanese) and cultural understanding (Vietnamese and that of the parent company) to ensure accurate and timely communication
● Strong reputation and professional network
Selecting a legal representative who meets both legal requirements and strategic considerations will strengthen the enterprise’s governance structure. If you need to change the legal representative, you may contact KMC.
