Notes to ensure the validity of the authorization for others to exercise the rights of the capital contributor member

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Notes to ensure the validity of the authorization for others to exercise the rights of the capital contributor member

In the business operation and management of enterprises, it is prevalent for an organization, individual (the authorization) to authorize another individual (the authorized) to execute one or several duties (scope of the authorization) such as signing commercial agreements or participating in a meeting,… Nevertheless, it is an essential matter in some exceptional cases, most distinctly the authorization for others to exercise the rights of a capital contributor member. Besides, the capital contributor’s obligations must comply with and execute, for example, completing their contribution of capital within 90 days from the day being issued with the Enterprise Registration Certificate, the right(s) of them can affect the development of the enterprise itself and directly affect the benefits and interests. Therefore, apart from selecting a suitable and trustworthy person, they should consider certain matters to ensure the validity of the authorization for another person to exercise the rights of capital contribution. This article will mention some fundamental issues to secure the power of attorneys is valid.

1. The content of powers of attorney

According to the general principle, a capital contributor member, when authorizing an authorized representative will still have to take responsibility towards a third party for the duties resulting from the rights and obligations exercised by the authorized representative. However, a power of attorney should still stipulate the scope of authorization to clarify the tasks authorized representatives are obligated to execute and take responsibility for towards the principal. Simultaneously, if the authorized representative engages in activities beyond their capacities, the scope of the authorization will be the basis for determining the responsibilities according to Article 143 of the Civil Code 2015. It should be noted that none of the restrictions that the capital contributor member places upon their authorization regarding the execution of their rights and obligations in the Members Council shall be effective to a third party.

Powers of attorney appointing an authorized representative must be notified to the company and take effect only from the date the company receives the document. According to Clause 4, Article 14 of the Enterprise Law 2020, the document appointing an authorized representative must include the following principal contents:

  1. Name, enterprise identification number, head office address of the the capital contributor member;
  2. Number of the authorized representative and the respective ratio of capital owned by each the authorized representative;
  3. Surname, first name, contact address, nationality, the ID number of each individual the authorized representative;
  4. Term of authorization corresponding to each authorized representative; in which the starting date of representation shall be specified;
  5. Surnames, first names, signatures of the legal representative of the the capital contributor member and the authorized representative.

Therefore, if a power of attorney does not fully represent the statutory contents or can be expressed but the content is incomplete, is that power of attorney valid? From the author’s perspective, the Law on Enterprises does not provide a clear solution when a power of attorney lacks one of the prescribed contents or the information on such contents is ambiguous or insufficient. Before coming to conclusions, it is necessary to consider and evaluate each case. For instance, an organization has the right to appoint many authorized representatives to attend meetings of the Members Council. Although the powers of attorney do not specify the percentage of capital contribution for each authorized representative, they can be deemed not contrary to law provisions, not affecting the authorized representative’s rights because they own the same amount of capital contribution.

2. Form of powers of attorney

The next question is whether powers of attorney need to be notarized or not. With respect to this, when a member of an organization or an individual drafts a power of attorney for others to exercise their rights in the enterprise, the Law on Enterprises 2020 and guidance documents thereof don’t state that such power of attorney needs to be notarized. Therefore, the demand that a power of attorney has to be notarized in order to be valid depends on the provisions of the enterprise’s charter. In case the enterprise’s charter also does not mention this, it can be understood that the notarization of such power of attorney is not compulsory. However, in reality, the lack of notarization of powers of attorney of individuals usually leads to disputes concerning the documents’ validity…

Similarly, provisions on consular legalization regarding powers of attorney of company members who are foreign investors are not explicit. Therefore, if there is no provision in the charter, disputes relating to the form of these powers of attorney are very likely to arise. Furthermore, powers of attorney are not exempt from consular authentication according to the Law on Consular certification and Authentication. On that ground, depending on the point of view of each court, powers of attorney of foreign individuals/organizations can be accepted or declined. 

From the author’s perspective, companies’ charters should stipulate precisely the form of powers of attorney to ensure the validity of powers of attorney and avoid risks of disputes concerning the validity of powers of attorney. In case the charter does not provide for this, powers of attorney should be notarized and authenticated by consuls to avoid potential disputes regarding the validity of powers of attorney.

In conclusion, enterprises in general and capital contributor members, in particular, should consider powers of attorney when authorizing. By understanding the law,  they can foresee and prevent potential risks from happening, avoiding engaging in unfeasible “transactions” and wasting time handling the consequences, affecting third parties if that transaction involves other organizations/individuals, the worst case of which is doing harm and damaging the enterprise. Therefore, it is always helpful and necessary to be well-prepared from the very first stages.