Issue 250925 – Rights of the Owner of a Private Enterprise under Special Circumstances

Dear Valued Clients,

Private enterprises are a unique type of business entity under the Law on Enterprises 2020 (“Enterprise Law”), where the owner has full authority over all business operations. According to Vietnamese law, in certain special situations (such as absence, loss of legal capacity, bankruptcy, dissolution, etc.), the rights of the owner may be limited or adjusted. Through this article, ENT Law Firm aims to help clients understand the legal rights and risks faced by private enterprise owners during business management and operations in Vietnam.

I. Special Circumstances Defined by Law

According to Article 193 of the Enterprise Law, the following special cases are specified:

– The owner is in custody, serving a prison sentence, or undergoing administrative measures at a compulsory rehabilitation or education facility;

– The owner has passed away;

– The owner is restricted or has lost civil act capacity, or has difficulty in cognition or behavior control;

– The owner is prohibited by court from practicing in the business sector of the private enterprise.

II. Rights of Private Enterprise Owners in Special Circumstances

2.1. Rights of Owners in Custody, Serving a Sentence, or Undergoing Administrative Measures

– In these cases, the owner may authorize another person to perform their rights and obligations (based on Clause 1, Article 193 of the Enterprise Law).

– The right of representation is established through authorization between the represented person and the representative (referred to as “authorized representative”) under Article 135 of the Civil Code 2015. The private enterprise owner is the represented party, and the person acting on their behalf is the authorized representative.

– Authorized Representative: Individuals or legal entities may authorize others to establish and perform civil transactions. Members of households, cooperatives, or other non-legal entities may agree to appoint a representative to handle civil transactions related to shared assets. Individuals aged 15 to under 18 may act as authorized representatives, except where the law requires transactions to be performed by those aged 18 or older (based on Article 138 of the Civil Code 2015).

– Authorization Contract: This is an agreement where the authorized party performs tasks on behalf of the authorizing party. Remuneration is only required if agreed upon or prescribed by law. Authorization must be in writing, specifically in the form of an authorization contract (based on Article 562 of the Civil Code 2015).

– Duration of Authorization: The term of representation is determined by the written authorization (Clause 1, Article 140 of the Civil Code 2015). If not specified, the duration is:

+ Until the end of the specific civil transaction, if the authorization is transaction-based;

+ One year from the date the authorization arises, if not tied to a specific transaction (Clause 2, Article 140).

– Termination of Authorization: Representation ends under the following conditions (Clause 3, Article 140):

+ As agreed;

+ Expiration of the authorization period;

+ Completion of the authorized task;

+ Unilateral termination by either party;

+ Death of either party (if individuals);

+ Dissolution of either party (if legal entities);

+ Representative no longer meets legal conditions;

+ Other circumstances that prevent representation.

– If an authorization contract exists, its duration is either agreed upon or prescribed by law. If neither applies, the contract is valid for one year from the date of establishment (Article 563 of the Civil Code 2015).

– Rights and Obligations of the Authorized Party

+ Rights (Article 566 of the Civil Code 2015): Request necessary information, documents, and tools from the owner; Receive reimbursement for reasonable expenses incurred; Receive remuneration, if agreed.

+ Obligations (Article 565 of the Civil Code 2015): Perform tasks as authorized and report to the owner; Inform third parties about the scope and duration of authorization; Safeguard documents and tools provided; Maintain confidentiality of information obtained; Return assets and benefits gained during the authorization period; Compensate for damages caused by breach of obligations.

– Rights and Obligations of the Private Enterprise Owner

+ Rights (Article 568 of the Civil Code 2015): Request full updates on the authorized tasks; Demand return of assets and benefits, unless otherwise agreed; Seek compensation for damages caused by the authorized party’s breach.

+ Obligations (Article 567 of the Civil Code 2015): Provide necessary information, documents, and tools; Be responsible for commitments made by the authorized party within the scope of authorization; Reimburse reasonable expenses incurred; Pay remuneration, if agreed.

2.2. Rights of Heirs in Case the Private Enterprise Owner Passes Away

– The legal recognition of inheritance of a private enterprise and the continuation of its operations after the owner’s death reflects the law’s acknowledgment of the private enterprise as an independent economic entity.

– Determining the Heir of the Private Enterprise:

+ With a will: The person named in the will becomes the new owner of the private enterprise. If there are multiple heirs, ownership is determined by mutual agreement. If no agreement is reached, the enterprise must either be converted into a company or dissolved (based on Clause 2, Article 193 of the Law on Enterprises).

+ Without a will: Legal heirs must agree on one person to become the new owner. If no agreement is reached, the enterprise must be converted into a company or dissolved (Clause 2, Article 193).

– Legal heirs are determined as follows (based on Article 651 of the Civil Code 2015):

+ First tier: Spouse, biological parents, adoptive parents, biological children, adoptive children.

+ Second tier: Grandparents, siblings, grandchildren whose grandparents are the deceased.

+ Third tier: Great-grandparents, uncles, aunts, nephews/nieces whose uncles/aunts are the deceased, great-grandchildren whose great-grandparents are the deceased.

If the owner dies without heirs or heirs refuse the inheritance: The assets are handled according to civil law (Clause 3, Article 193). Under Article 622 of the Civil Code, if there are no heirs or they refuse the inheritance, the remaining assets—after fulfilling financial obligations—will belong to the State.

– Rights and Obligations of Heirs: According to Clause 3, Article 193 and Clause 1, Article 188 of the Law on Enterprises, since the owner is personally liable for all business activities with their entire assets, this liability persists even after death. The heir is responsible for fulfilling the deceased’s obligations within the scope of the inherited estate.

2.3. Rights of Owners with Limited or Lost Civil Capacity, or Cognitive Impairment

– In cases where the owner has limited or lost civil capacity or difficulty in cognition and behavior control, their rights and obligations are exercised through a legal representative (Clause 4, Article 193 of the Law on Enterprises).

– Definitions under the Civil Code 2015:

+ Loss of civil capacity (Article 22): A person with mental illness or other conditions that prevent them from understanding or controlling their behavior.

+ Limited civil capacity (Article 24): A person addicted to drugs or stimulants causing serious economic hardship to family and society.

+ Cognitive difficulty (Article 23): An adult with physical or mental conditions that impair cognition and behavior control, but not to the extent of full incapacity.

– Legal Representation:

+ Scope of representation is defined by: competent authority decisions, content of authorization, or other legal provisions.

+ If not clearly defined, the legal representative may perform all civil transactions for the benefit of the represented person, unless otherwise regulated.

+ A person or entity may represent multiple parties but cannot act on behalf of the private enterprise owner in transactions with themselves or third parties they also represent—unless permitted by law.

+ The representative must inform transaction parties of their scope of representation.

2.4. Rights of Owners Prohibited by Court from Practicing in Their Business Sector

– If the owner is prohibited by court from practicing in the business sector of the enterprise, they must suspend or terminate operations in that sector or transfer the enterprise to another individual or organization (Clause 5, Article 193 of the Law on Enterprises).

– Owner’s Rights (Clause 5, Article 193):

+ The enterprise only needs to suspend or terminate the prohibited business sector, not all registered activities.

+ If no other business sectors remain, the owner may transfer the enterprise.

+ If all registered sectors are prohibited, the owner may sell the enterprise under Article 192 of the Law on Enterprises.

– Owner’s Obligations:

– During suspension (Clause 3, Article 206), the enterprise must:

+ Pay outstanding taxes, social insurance, health insurance, unemployment insurance;

+ Continue settling debts and fulfilling contracts unless otherwise agreed with creditors, customers, or employees.

–  In case of transfer (Article 192), the former owner remains liable for debts and obligations incurred before the transfer unless otherwise agreed. Both parties must comply with labor laws.

We hope this article helps clarify legal concerns for our valued clients.

Sincerely,
ENT Law LLC