Set out below are the cases where the Enterprise Law 2014 allows piercing corporate veil (i.e. making a shareholder/member of a company liable for the liabilities of the company). This post is prepared by VILAF legal staffs, Nguyen Bich Ngoc and Ha Kieu Anh.
1) Withdraw contributed capital not in accordance with laws
In a single member limited liability company (“Single-member LLC ”)
a) The owner of a Single-member LLC may withdraw capital only by way of assignment of a part or all of the charter capital to other organization(s) or individual(s); in the case of withdrawal of all or part of its contributed capital from the company in another form then the owner and the relevant individual(s), organization(s) must be jointly liable for debts and other property obligations of the company.
In a joint stock company (“JSC”)
b) Ordinary shareholders are not allowed to withdraw the ordinary share capital contributed from the company in any form, except where shares are redeemed by the company or other persons. Where a shareholder withdraws a part or all of the capital contributed not in accordance with this clause, the shareholder and the relevant person having benefits in the company will be jointly liable for debts and other property obligations of the company to the extent of the value of shares withdrawn.
In a Single-member LLC
The owner of a Single-member LLC will bear responsibilities by all of the owner’s property for the financial obligations and losses of the company arising from the owner’s failure to contribute, failure to contribute in full, failure to contribute in time charter capital.
In a limited liability company with two or more members (“Multi-member LLC”)
Members of a Multi-member LLC must bear personal responsibilities (chịu trách nhiệm cá nhân) when performing the following acts in the name of the company:
a) Violating the laws;
b) Conducting business or other transactions not in the interest of the company and causing damage to other persons; and
c) Paying off undue debts when there is a financial danger facing the company.
The words “bear personal responsibilities” may make one confused whether a member being organization who performs such acts will be liable for any loss therefrom to the company or in other words, whether those cases may lead to piercing corporate veil against members being individuals only. That said, one may argue that this provision provides a common obligation of members of a Multi-member LLC and a member being organization may be liable for any obligations arising from the aforementioned acts conducted by its authorized representative, and thus, “bear personal responsibility” should be interpreted as “be self-responsible for”.
4) Self-interest transactions
Members of a Multi-member LLC, owner of a Single-member LLC, and shareholders of a JSC may bear responsibility for losses to company and must pay back benefits to the company if they enter into transactions with related persons without complying with approval procedures under the Enterprise Law 2014.
5) Interfering into subsidiary company’s business beyond the authority
Where the parent company interferes beyond the authority of the owner, member or shareholder, and compels a subsidiary company to conduct business operations inconsistently with normal business practices or conduct unprofitable activities without reasonable compensation in a relevant fiscal year, causing damage to the subsidiary company, the parent company will be responsible for such damage.