Under the Civil Code 2015, the legal capacity of a branch is limited. To be specific, a branch cannot enter into contracts under its own name since it is not a legal person or a natural person. Also, while it is not entirely clear (see below), it is arguable that a branch can no longer be a representative of its parent company. Therefore, it is unsure whether a contract signed by a branch on behalf of the parent company is valid under the new regulations of the Civil Code 2015. This is because under the Civil Code 2015,
- only natural persons and legal persons can enter into contracts under their names;
- only a natural person or a legal person can become a representative for another person (either natural or legal); and
- the Civil Code 2005 used to provide that a branch’s function includes representative function (chức năng đại diện theo ủy quyền). However, such a provision is now removed under the Civil Code 2015.
There are certain arguments that despite the limitation under the Civil Code 2015, a parent company is still liable for contracts entered into by its branches. In particular,
- the Enterprise Law 2014, which is still applicable, provides that a branch may function as representative of its parent company. However, the Civil Code 2015 is the more recent law and could prevail the Enterprise Law 2014, if there is any inconsistency;
- under the Civil Code 2015, the parent company has the rights and obligations arising from the civil transactions made and carried out (xác lập và thực hiện) by its branches. Therefore, even if the branch cannot enter into contracts on behalf of the parent company, the parent company is still liable for every transaction conducted by its branch. However, technically, the requirement that a parent company is responsible for transactions entered into by its branch does not mean that the parent company must perform such transactions. This could mean that the parent company must compensate for the damages caused by the branch (by entering into a transaction without authorisation); and
- the head of the branch could act as the representative of the parent company. Therefore, if the head of branch signs the contract then such contract will be binding on the parent company. However, in that case, the head of the branch should sign on behalf of the parent company, not the branch itself. In addition, if the contract is required by sealed, then thecontract should be sealed by the parent company’s seal not the branch’s seal.
This post is contributed by Le Thanh Nhat, a legal intern at Venture North Law.