Under Article 84.2 of the Civil Code 2015, a branch (chi nhánh) of a legal entity has the duties to perform all or parts of the legal entity’s functions. However, a branch is not allowed under the Civil Code 2015 to act as an authorized representative of a legal entity. Accordingly, it is not clear in what capacity a branch would perform the functions of a legal entity.

Logically, in order for a branch to perform all or parts of the legal entity’s functions, either

Option 1: a branch could be allowed to act as an authorized representative of a legal entity under another law; or
Option 2: a branch could perform the functions of a legal entity in its own name and capacity. In other words, a branch can perform the functions of a legal entity without needing an authorization from the parent entity and the action (or inaction) of a branch will be deemed an action or inaction of the parent entity.

Regarding Option 1, under the Civil Code 2015, various provisions suggest that only natural persons and legal entities can enter into contracts under their names. In addition, a legal entity may only authorize another individual or legal entity to enter into and perform a civil transaction. Therefore, a branch which is not a legal entity cannot be authorized by its parent company to enter into and perform the contract as an authorized representative of the parent entity.

Under the Enterprise Law 2020, a company branch can perform all or a part of the functions of such company, including the authorized representative function. It is not clear if this wording refers to the ability of a branch (1) to act as authorized representative of the parent entity of such branch, or (2) to act as authorized representative of a third party who authorizes the parent entity of which such branch is a part to act as the authorized representative of such third party. While there are different interpretations, interpretation (1) seems more reasonable. If Interpretation (1) is adopted then one could argue that the Enterprise Law 2020 as the more recent law will prevail the Civil Code 2015 and accordingly, under the Enterprise Law 2020, a branch of a company could enter into contracts as an authorized representative of the company.

Regarding Option 2, since the legal basis for Option 1 is not entirely clear, in our view Option 2 is a better approach. Under Option 2, a branch could perform a task that has been delegated by the parent entity without needing an authorization (ủy quyền) from the parent entity. And an action or inaction of the branch will be considered as an action or inaction of the parent entity. Article 84 of the Civil Code 2015 provides, among other things, that a legal entity will have rights and obligations arising from the civil transactions entered into and performed by its branch.

This post is written by Tran Duc Long and edited by Nguyen Quang Vu.

Vietnam Business Law