Setting up a representative office in Vietnam

If a foreign company only plans to collect information and research Vietnam’s market regarding the demand of certain goods and services and to have a contact point in Vietnam then in addition to incorporating a company under both Investment Law 2014 and Enterprise Law 2014, the foreign company may consider setting up a representative office under the Commercial Law 2005 and Decree 72/2016. The advantages of having a representative office in Vietnam are:

·        The timing and procedures to set up a representative office would be shorter and simpler than setting up a foreign invested company;

·        Technically, a representative office can be operated and managed by one staff (who will be the chief representative in this case); and

·        Operating a representative office would be simplier and less expensive cost because a representative office is not subject to tax declaration, preparation of financial statements, preparation and submission of labor and investment reports. Usually, a representative office only needs to submit annual operating report by 31 January each year.

Operating through a representative office has the following disadvantages:

·        A representative office has no status of independent legal entity;

·        The operation term of a representative office is 5 year at maximum (but can be extended); and

·        A representative office is not entitled to enter into sale and purchase contracts or other business activities.

Director duties in Vietnam - Business judgement rules

In certain jurisdiction, a Board director is protected by the “business judgement rules” whereby an officer of a company is entitled to the presumption that he or she acted in good faith, and absolves the officer of personal liability unless it is established that he or she engaged in fraud, bad faith or an abuse of discretion. The business judgment rule protects officers from liability when they make good faith business decisions in an informed and deliberate manner.

Vietnamese law does not expressly provide for a “business judgment rules” for a Board director of a joint stock company (JSC). However, in the context of a Public JSC, Article 36.2 of the Public JSC Model Charter provides that “the company shall pay compensation to a person who has been, is or is likely to become a party involved in a claim, suit or legal proceeding … where such person was or is a member of the Board of Directors, a manager … provided that such person has acted honestly, carefully, and diligently in the interests or not contrary to the best interests of the Company, and on the basis of compliance with law and on condition that there is no discovery or confirmation that such person breached his/her obligations.” The wording of Article 36.2 of the Public JSC Model Charter suggests that a Director who makes a erroneous business decision may be protected from liability if he/she can prove that he/she has exercised his/her duty of care, and duty to act honestly. This is quite close to the business judgment rules except that the burden of proof belongs to the director (who must prove that he/she has acted with duty of care and honestly and complied with law) not the company. Arguably, the wording of Article 36.2 of the Public JSC Model Charter could be used in charters of both Public JSCs and non-Public JSCs to provide business judgement rules protection to Board directors of a JSC.

Can the Prime Minister authorise a direct sale of State shares in an unlisted joint stock company?

Under Decree 91/2015 and an Official Letter 10791 of the Ministry of Finance (MOF) in August 2016, it is no longer clear whether the Prime Minister can authorise the sale of shares held by the State in an unlisted joint stock company to a private investor without holding a public auction of such shares first. In practice, many investors (especially those who want to acquire control or a substantial stake in a joint stock company from the State) prefer to being able to deal directly with the State-seller rather than going through a complicated public auction process.