Can branches in Vietnam sign contracts?

In the context of increasingly growing and expanding business operations, the authority and capacity of branches to enter into contracts have become a matter of great interest for many enterprises. Can a branch in Vietnam be authorized to sign contracts on behalf of the parent company? To answer this question, it is essential to have a clear understanding of the nature of a branch, the relevant legal regulations, and the factors that influence a branch’s authority to sign contracts within each specific business sector. In the following article, Viet An Law will help you analyze the legal aspects, procedures, and conditions required to determine whether a branch has the authority to sign contracts.

What is a branch?

Pursuant to Article 44.1 of the Law on Enterprises 2020, a branch is stipulated as follows:

“1. A branch of an enterprise is its dependent unit, which has some or all functions of the enterprise, including an authorized representative. The business lines of a branch shall match those of the enterprise.”

Thus, a branch is considered a part of an enterprise and is assigned to carry out all or part of the enterprise’s functions, including the function of representation under authorization.

In addition, under legal regulations, an organization is only recognized as a legal entity when it meets the following conditions:

• It is established in accordance with this Code and other relevant laws;
• It has an organizational structure;
• It possesses assets that are independent from those of individuals or other legal entities and is liable with its assets;
• It independently participates in legal relations in its name.

Since a branch does not meet the above conditions, it is not considered a legal entity and has no juristic personality.

Can branches in Vietnam sign contracts?

A branch is a dependent unit of the company and does not have a juristic personality. Therefore, in terms of legal subjectivity, a branch does not have the independent capacity to enter into contracts with other parties.

However, Article 84 of the Civil Code 2015 regarding branches states as follows:

• A branch or representative office is a dependent unit of a legal entity and is not a legal entity itself.
• A branch is responsible for carrying out all or part of the functions of the legal entity.
• The establishment or termination of a branch or a representative office of a juridical person must be registered as prescribed by law and announced.
• The head of each branch or representative office shall perform his/her duties as authorized by the juridical person within the authorized scope and for the authorized duration.
• A juridical person shall have civil rights and obligations arising from civil transactions established and performed by its representative offices and/or branches.

Thus, despite having no legal entity status, branches and representative offices can still sign contracts.

A branch has full authority to sign contracts if the signing is within the scope of work authorized by the juristic person. This means the legal representative of the company may issue a written authorization to the head of the branch (a dependent unit), authorizing them to act on behalf of the company and directly sign commercial contracts with clients and perform those contracts.

If the branch or representative office signs contracts or performs actions that require the company’s approval, the head of the branch or representative office must present valid written authorization from the company.

Contracts signed by a company’s branch will bear the company’s official seal and bind the company. The rights and obligations arising from the transaction belong to the company, and the company shall be legally liable for those activities within the scope of the authority it has granted.

Certain examples of cases where a branch is authorized to sign a contract on behalf of the company:

Example: Regarding the signing of labor contracts within the company

• Pursuant to Article 63.2(k) of the Law on Enterprises 2020, the director of a two-member limited liability company has the authority to hire employees. As branches and representative offices are dependent units of the company, the director of the company also has the authority to hire employees for the branches and representative offices.
• If an employee signs a labor contract with the director of a branch or representative office, the employee has the right to request that the employer provide a written authorization from the company, confirming that the director of the branch or representative office is authorized to sign labor contracts.

Example of a real case

• Economic contracts No. 01 and 02, signed on 1^st March 2005, for the purchase of construction materials and execution of works between Toan Hieu General Trading and Service Co., Ltd. (Claimant) and Xanedys Joint Stock Company – Hanoi Branch (Respondent), are real cases. At the trial, both Ms. Hợi and Mr. Trường confirmed that when signing the contracts, Xanedys Joint Stock Company – Hanoi Branch did not yet have a seal and later affixed the seal. Mr. Lê Văn Trường had previously been appointed as the acting director of  Xanedys Joint Stock Company’s Hanoi Branch since 23^rd April 2004.
• Although on 15^th April 2005, Xanedys Joint Stock Company officially decided to establish a branch in Hanoi, and on 24^th May 2005, the company obtained its Business Registration Certificate (due to a name change), BĐ_ Xanedys Joint Stock Company has been operating well since then. After the conclusion of two contracts, Xanedys Joint Stock Company made several payments to the Claimant, totaling 900,000,000 VND. This showed that the director of Xanedys Joint Stock Company was aware of and agreed to the payments as per the invoices (BL 44 to 86) from 20^th May 2005 to 12^th April 2006 (the payment documents from Xanedys Joint Stock Company to the Plaintiff at the bank are shown in the case file from pages 111 to 116, from 24^th April 2005 to 21^st December 2005). Thus, the two economic contracts (No. 01 and 02, dated 1^st March 2005) are not invalid, contrary to the claims made by the Defendant’s representative.

Notes when signing contracts with a branch

• Enterprises can conclude that transactions established by their branches, based on authorization from a competent person, are binding on the company. Likewise, a business partner that enters into a relationship with the branch of another company should be aware that such transactions must be authorized by the parent company of that branch.
• A business dealing with a branch as a contracting party should carefully verify the existence of the authorization. The business should require the branch to provide information on whether it has a general authorization or a transactional authorization for entering into the transaction.
• If, during the contract conclusion stage, it is found that the branch has no authorization from the legal entity, the business should refrain from signing the contract; otherwise, it may face significant risks.
• If a branch lacks authorization but the other contracting party has already entered into a transaction, the branch must prove that the legal entity with the branch was aware of the transaction and did not object. For example, if the legal representative of the parent company signed an invoice for a partial payment arising from the transaction. In such cases, the legal entity with the branch is deemed to have accepted the transaction and will be bound by this transaction.

Legal consequences of invalid contracts signed by a branch

Under Article 131 of the Civil Code 2015, the legal consequences of an invalid civil transaction include:

• An invalid civil transaction shall not give rise to, change, or terminate any civil rights and obligations of the parties as from the time the transaction is entered into.
• When a civil transaction is invalid, the parties shall restore everything to its original state and shall return to each other what they have received.
• If the restitution is not able to be made in kind, it may be paid in money.
• A bona fide person in receiving yield and/or income is not required to return such yield and/or income.
• The party at fault that caused damage must compensate.

Therefore, when signing a contract with a branch, it is crucial to require the branch manager to present the company’s written authorisation to avoid the contract being invalid due to a person who lacks the authority to represent the company.

Additionally, it should consider that in the event of a contract dispute or if the contract is declared invalid, attention must be given to the consequences and which party is liable. This is because a branch is a special type of entity that does not have legal personality and only performs its duties within the scope of the company’s authorization. Therefore, it is not fully liable for the contract on its own.

The above is Viet An Law’s legal advice to help you answer the question: Can branches in Vietnam sign contracts? If you have any further related questions or require in-depth legal consultation, please do not hesitate to contact Viet An Law for the best support!