During the course of operations, enterprises do not always function in a stable condition with complete corporate governance structures, particularly when unusual legal events arise involving individuals holding key managerial and executive positions. Recognizing this specific nature, the Law on Enterprises 2020 has established various legal mechanisms to ensure the continuity of business operations, even in cases where the owner or legal representative is no longer capable of directly exercising management rights and obligations due to the application of criminal procedural measures or the serving of a prison sentence.
In practice, situations where the owner concurrently acts as the legal representative of a single-member limited liability company and is placed under temporary detention, custody, or imprisonment give rise to numerous complex legal issues relating to representation mechanisms, management authority, validity of transactions, as well as the company’s ability to maintain its normal operations. This is not merely an internal corporate matter but also directly affects the rights and interests of business partners, employees, state authorities, and other relevant parties engaging in legal relationships with the enterprise.
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What is a Single-Member Limited Liability Company?
A single-member limited liability company is an enterprise owned by a single organization or individual, possessing legal entity status, conducting transactions in its own name, and bearing liability before the law.
Who is the Owner of a Single-Member Limited Liability Company?
The owner of a company is an individual or organization responsible for contributing capital to the company and bearing rights and obligations within the scope of the capital contributed to the company. The company owner is liable for the company’s debts and other property obligations within the charter capital of the company.
Who is the Legal Representative of a Single-Member Limited Liability Company?
The legal representative of an enterprise is an individual representing the enterprise in exercising rights and obligations arising from the enterprise’s transactions, representing the enterprise as the requester for the settlement of civil matters, plaintiff, defendant, or person with related rights and obligations before Arbitration or the Court, and exercising other rights and obligations in accordance with the law.
How Should an Enterprise Handle the Situation Where the Owner and Legal Representative of a Single-Member Limited Liability Company is Detained or Serving a Prison Sentence?
In cases where the owner concurrently acts as the legal representative of a single-member limited liability company and is under temporary detention, custody, or serving a prison sentence, the handling mechanism is governed by Clause 2, Article 78 of the Law on Enterprises 2020, which provides:
“Where the company owner being an individual is temporarily detained, serving a prison sentence, serving an administrative handling measure at a compulsory drug rehabilitation establishment or compulsory educational institution, such owner shall authorize another person to exercise some or all of the rights and obligations of the company owner.”
Pursuant to the above provision, the law does not automatically terminate the ownership status of an individual who is temporarily detained, held in custody, or serving a prison sentence. Instead, it establishes an authorization mechanism to ensure the stable continuity of corporate governance activities. Accordingly, the company owner is obligated to authorize another individual or organization to act on their behalf in exercising part or all of the rights and obligations arising during the management and operation of the enterprise.
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In addition, this regulation contributes to protecting the lawful rights and interests of the enterprise, business partners, and employees, as activities such as contract execution, fulfillment of financial obligations, and handling of internal affairs may continue normally through the authorized representative. Furthermore, the authorization mechanism enables enterprises to proactively respond to legal risks, minimize damages arising from force majeure situations involving key personnel, and maintain business stability and reputation in the market.
What Rights May the Authorized Person Exercise on Behalf of the Company Owner?
The authorized person may, on behalf of the company owner, manage and operate the enterprise to ensure that business activities continue in a stable and uninterrupted manner. At the same time, such person has the authority to sign documents, contracts, and conduct necessary transactions arising during the company’s operations. In addition, the authorized person may exercise other rights and obligations relating to the company within the scope and content authorized by the company owner.
However, in practice, authorization procedures cannot always be carried out conveniently in every case.
Pursuant to Clause 3, Article 19 of the Law on Execution of Temporary Detention and Custody:
“Persons held in temporary custody or temporary detention are subject to restrictions on movement, transactions, contact, communication, and religious or belief-related activities. In cases where civil transactions are necessary, they must be conducted through a lawful representative and with the consent of the authority handling the case.”
For certain serious cases, the investigating authority may restrict or prohibit detainees from meeting their relatives, thereby making it impossible to establish and complete authorization procedures in accordance with the law.
This places enterprises in a difficult situation where there is no person with sufficient authority to manage and handle arising matters. Notably, current laws still lack specific regulations or guidance governing these exceptional circumstances, resulting in a certain legal gap in practical application.
Conclusion
Current enterprise laws have anticipated the authorization mechanism to ensure that business operations are not interrupted in cases where the owner concurrently acts as the legal representative of a single-member limited liability company and is temporarily detained or serving a prison sentence. Nevertheless, in practice, there remain special circumstances where authorization procedures cannot be carried out due to restrictions imposed by procedural authorities.
If your enterprise encounters any legal issues, please contact INLaw Viet Nam support and legal consultation.
