When opening a company in Vietnam, one of the most important factors that foreign business owners and entrepreneurs need to understand is the role of the Legal Representative (LR).
Framework of Regulations on Legal Representatives (LR) in Vietnam
A legal representative is an individual who represents the enterprise in exercising its legal rights and obligations, from signing contracts to representing it before state agencies. This is especially important for foreign direct investment (FDI) enterprises.
Requirements for a legal representative:
- Must be 18 years of age or older, with full civil capacity (not restricted or incapacitated by law).
- Can be a Vietnamese citizen or a foreigner, but must have a legal management title (for example: Director, General Director, Department Head …).
- Vietnamese law requires at least one legal representative to reside in Vietnam to ensure feasibility in management and compliance with the law.
- An enterprise may have multiple legal representatives, but the authority of each person must be clearly specified in the Company Charter to avoid disputes.
- If the sole legal representative leaves Vietnam, he/she must authorize in writing another individual residing in Vietnam to act as temporary legal representative.
Challenges of Foreign Direct Investment (FDI) Enterprises on Legal Representative Issues
FDI enterprises in Vietnam often face many challenges when complying with regulations on legal entities. These challenges can slow down the process of establishing and operating a company, increase costs, and create legal risks.
- Strict residency requirements: Foreign owners are often unable to reside permanently in Vietnam due to work schedules or personal reasons, leading to difficulties in VNeID registration and administrative procedures. Without a resident legal representative, the business may be refused registration or face disruptions in operations.
- Legal risks and liability for nominees: Without a formal nominee framework, using a local nominee can lead to disputes, such as the nominee being sued or fined due to the business’s fault.
Responsibilities and risks of the representative:
- The sole proprietor is personally liable for damages caused to the business if he breaches his obligations.
- Residence of the legal representative is a mandatory condition for registering for organization identification (VNeID) and other administrative procedures.
Comparison with Singapore Regulations on Legal Representative
To illustrate, let us compare the regulatory framework for DD/Nominee in Vietnam with that of Hong Kong and Singapore, two markets that many foreign investors are familiar with. The table below summarizes the key points:
| Criteria | Vietnam | Singapore |
| Residency requirements | At least 1 representative must satisfy the condition of being a “resident” in Vietnam. | At least 1 director must be a Singapore resident (citizen or permanent resident). |
| Nominee Legal Framework | There is no official framework. | There is a clear legal framework. |
| Nominee’s Responsibilities | Full responsibility as a real representative; high risk of involvement if violated. | Has the same duties as a regular director. |
| Protection and risk | Not much practical experience. | D&O insurance and Declaration of Trust required. |
Solutions for FDI enterprises on Legal Representative
Based on the above understanding, the following are suitable solutions for compliance with the requirements on legal representatives according to Vietnamese law:
Recruiting managers who are also legal representatives who are foreigners residing in Vietnam or Vietnamese.
Optimizing the company’s management structure: Reorganizing the company’s management structure to meet the needs of having a legal representative who is a foreigner residing in Vietnam or a Vietnamese person.
Optimizing investment structure: Joint venture with reliable Vietnamese partner.