Question:
Our company intends to authorize an employee to sign contracts with customers and business partners on behalf of the legal representative. Is such authorization legally permitted? How should the scope and duration of the authorization be defined to ensure the legal validity of the contracts?
Answer:
Identifying the legal representative and their authority
Under Clause 1, Article 12 of the 2020 Law on Enterprises, the legal representative is an individual who represents the enterprise in exercising rights and performing obligations arising from the enterprise’s transactions. Where an enterprise has more than one legal representative, its Charter must specify the rights and obligations of each. This provision serves as the basis for determining who holds the enterprise’s inherent representative authority, and therefore whose authority may in turn be delegated to another person.
Basis for authorizing an employee to sign contracts
The authorization by a legal representative of an employee to sign contracts in the ordinary course of business is based on the provisions of the 2015 Civil Code on representation by authorization, specifically:
- Article 138 of the 2015 Civil Code: an individual or legal entity may authorize another individual or legal entity to establish and perform civil transactions on its behalf. On this basis, the legal representative of an enterprise may authorize an employee to perform one or more tasks within the scope of the legal representative’s own authority, including the signing of contracts, provided that such authorization does not contravene the company’s Charter and does not concern a business line or type of transaction that specialized law requires the legal representative to perform directly.
- Article 141 of the 2015 Civil Code: the scope of representation is established according to the content of the authorization. A person acting under authorization may only establish and perform civil transactions within that scope of representation. This provision is the basis for the requirement that an enterprise clearly and specifically define the scope of work, types of contracts, and transaction value in the authorization document.
- Article 143 of the 2015 Civil Code: a civil transaction established or performed by a representative in excess of the scope of representation does not give rise to rights or obligations for the represented person with respect to the portion of the transaction exceeding that scope, except in certain exceptional cases (where the represented person consents, knows of the transaction and does not object within a reasonable time, or is at fault such that the counterparty did not know and could not have known that the scope of representation had been exceeded). This provision is an important basis for an enterprise to manage the risk of an employee signing beyond the scope of the authorization granted.
A separate case: mandatory authorization due to absence from Vietnam
This mechanism should be distinguished from the mandatory authorization required under Clauses 3 and 4, Article 12 of the 2020 Law on Enterprises: where an enterprise has only one legal representative residing in Vietnam and that person leaves Vietnam, they are required to authorize, in writing, another individual residing in Vietnam to exercise the rights and perform the obligations of the legal representative, and remain responsible for the exercise of the delegated rights and obligations. This is a mandatory authorization mechanism arising from a specific situation (absence from Vietnam), distinct from authorizing the signing of one or more contracts in the ordinary course of business.
Note on internal allocation of authority
In addition to the above, an enterprise should review its Charter and relevant internal resolutions or decisions to determine whether the authorization requires prior approval from another competent corporate body (such as the Members’ Council, Board of Directors, or General Meeting of Shareholders) before the legal representative grants the authorization, depending on the type of enterprise and the specific provisions of its Charter.
Contents to include in the authorization document
To mitigate legal risks, the authorization document should clearly specify at least the following:
- The authorizing party and the authorized person;
- The legal basis and purpose of the authorization;
- The type of contract or transactions covered by the authorization;
- The customers, partners, or scope of transactions covered;
- The maximum contract value, where applicable;
- The duration of the authorization;
- The authority to sign, amend, supplement, extend, or terminate contracts;
- The responsibilities of the authorized person.
The enterprise should pay particular attention to controlling cases where the authorized person signs beyond the scope or duration of the authorization, since under Article 143 of the 2015 Civil Code, the portion of a transaction exceeding the scope of representation may not give rise to rights or obligations for the enterprise, except in the exceptional cases noted above.
Conclusion
An enterprise may authorize an employee to sign contracts on behalf of its legal representative, on the basis of the provisions on representation by authorization under the 2015 Civil Code (Articles 138, 141, and 143), together with a proper determination of the legal representative’s authority under Article 12 of the 2020 Law on Enterprises and the company’s Charter. Mandatory authorization due to absence from Vietnam under Clauses 3 and 4, Article 12 of the 2020 Law on Enterprises is a separate mechanism and should not be conflated with the authorization to sign contracts in the ordinary course of business. The enterprise should establish a written authorization clearly specifying the scope, duration, and authority granted, and should closely control the authorized person’s actions to ensure they remain strictly within that scope, in order to mitigate risks relating to authority and the validity of transactions.
