Issue 020423 – Pre-registration contracts

Dear Valued Clients, 

The pre-registration contract has an important meaning and role in the process before the establishment.

To better understand the concept, properties, characteristics, as well as issues keep in mind the opinion of the pre-registration in accordance with the provisions of the Enterprise Law No. 59/2020/QH14 of the National Assembly, dated June 17, 2020 (“Enterprise on Law 2020”), please see directions our basic citation in this article. 

1. Concept

Enterprise on Law 2020 stipulates that a pre-registration contract is a contract that the enterprise’s founder may sign in order to serve the establishment and operation of the enterprise before and during the process of enterprise registration^[1].

2. Characteristic, property

The pre-registration contract has the following characteristics, and properties:

(i)        One of the contracting parties is the enterprise’s founder^[2]. The enterprise’s founder is understood as an established individual, or organization that contributes capital to establish an enterprise^[3]. Therefore, the signatory of the pre-registration contract may be an individual, or organization establishing an enterprise or an individual, or organization contributing capital to establish an enterprise;

(ii)       The purpose of entering into a contract is to serve the establishment and operation of the enterprise;

(iii)       The time of entering into the pre-registration contract is before and during the process of establishment enterprise^[4]. Since at the time of signing, the future enterprise has not yet been established and has no legal status, contracts serving the establishment and benefit for the benefit of the company must be entered into by the company’s founder^[5].

(iv)       When the enterprise is not established, the person who brings the obligations and is responsible for the breach of the contract is the person who directly enters into the contract. In case the enterprise is established, the enterprise must continue to perform the contract^[6]. The future enterprise (after being established) will have to receive and perform the tasks arising from a pre-registration contract that the legal entity itself has not signed, but is transferred before the registration is signed by the founder of the enterprise.

In addition to the above characteristics and properties, the investor necessary to note the following issues for the pre-registration contract^[7]:

Firstly, regarding the parties to the contract, the pre-registration contract may or may not have a third party. In fact, contracts involving the third party are often seen as the lease contract for the head office of the enterprise or the principal agreement on the recruitment of employees. For contracts that do not involve a third party can mention a contract between the enterprise’s founder on capital contribution and cost-sharing before establishing an enterprise or sharing the right to manage the enterprise.

Secondly, regarding the purpose of the contract, the pre-registration contract must serve the purpose of serving the establishment and operation of the enterprise such as stabilizing, carefully preparing for the establishment, ensuring the operation of the enterprise during the time before and during the enterprise registration process in accordance with the law. The pre-registration contract may include office lease contracts, legal service lease contracts, capital contribution contracts, management administration contracts, etc.

In case the contract is signed by the enterprise’s founder but does not serve the establishment and operation of the enterprise before business registration, it will be governed by the Civil Code No. 91/2015/QH13 of the National Assembly dated 24 November 2015 (“Civil Code 2015”). However, at present, the law does not have clear regulations on criteria for determining the purpose, so when entering a pre-registration contract, the parties need to clearly specify this purpose in the contract.

Thirdly, regarding the contract on the responsibilities of the parties:

(i)        When the enterprise granted an Enterprise Registration Certificate (“ERC”) is granted, the enterprise shall continue exercising and performing the rights and obligations under the concluded pre-registration contract and the parties shall transfer the rights and obligations in accordance with the Civil Code, unless prescribed by the contracts. This provision is reasonable because as mentioned the purpose of the pre-registration contract is to serve the interests of enterprises. Therefore, when the enterprise has been recognized before the law, the enterprise will have to continue to perform the rights and obligations arising from the contract on its own behalf and for its own benefit.

(ii)       In case the ERC is not granted, the signatories of the pre-registration contract are responsible for their execution. Any other participant in the establishment of the enterprise is also responsible for the execution of these contracts. This provision is intended to ensure the interests of the other party when entering into a pre-registration contract, meaning their rights and obligations are still guaranteed regardless of whether the enterprise is established or not. Thus, in the contract between the enterprise’s founders or a third party, it is necessary to clarify the scope of responsibility of the parties involved. However, the regulations of the Enterprise on Law 2020 currently do not have clear criteria on the extent, and scope of responsibility of the enterprise’s founder when the enterprise has not been established.

Fourthly, regarding the transfer of contractual rights and obligations under the provisions of the Civil Code 2015, there are currently no specific provisions in the Civil Code 2015 defining the transfer of rights, obligations under the contract or regulations on the form of transfer, transfer part or all of the rights, obligations under the contract in accordance with the provisions of Enterprise on Law 2020.

As always, we hope you find this Legal Article useful and look forward to working with you in the future.

Kind regards,

ENT LAW LLC

The full version of this Legal Article can be found here.

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[1] Clause 1 Article 18 Enterprise on Law 2020.

[2] Clause 1 Article 18 Enterprise on Law 2020.

[3] Clause 25 Article 4 Enterprise on Law 2020.

[4] Clause 1 Article 18 Enterprise on Law 2020.

[5] Master Huynh Thien Tu, Transfer of rights and obligations pre-registration contract from a comparative perspective, Legislative Research website portal, accessed April 10, 2023 (lapphap.vn).

[6] Clause 2, clause 3 Article 18 Enterprise on Law 2020.

[7] Phamlaw Law, Legal nature of the pre-registration contract, Website of Phamlaw Law Firm, accessed April 10, 2023 (phamlaw.com).