The Law on Enterprises 2025 increases the personal liability of legal representatives. Below is an analysis of its implications, legal risks, and recommendations for enterprises.
| Content | Implications | Actions |
| The legal representative of an enterprise shall bear personal liability in accordance with the law for damages caused to the enterprise due to violations of the obligations prescribed in Clause 1 of this Article. | – Enhances deterrence and prevention of violations by imposing personal liability on legal representatives, requiring greater prudence in management and decision-making. – Personal liability of legal representatives strengthens the protection of interests of stakeholders, including shareholders, company members, employees, partners, and customers of the enterprise. | – Review all Employment Contracts, the Charter, and Appointment Decisions/Authorization Agreements for the legal representative. – Establish internal control mechanisms to ensure proper delegation of authority, cross-checking, approval, and supervision. – Consider obtaining Directors and Officers Liability Insurance (D&O Insurance). |
1. Legal Background on Personal Liability of Legal Representatives
In the course of advising and updating enterprises on new legal policies, DNP Viet Nam Law Firm has identified the regulation on personal liability of legal representatives as one of the notable changes introduced by the Law amending and supplementing the Law on Enterprises 2025. This provision reflects the trend of strengthening corporate governance accountability and enhancing transparency in business operations. At the same time, it is an important adjustment aimed at protecting the rights and interests of shareholders, investors, and related parties.
The legal basis for this provision is set out in Clause 4, Article 1 of the Law amending and supplementing the Law on Enterprises 2025, which amends Clause 2, Article 13 of the Law on Enterprises 2020. Under the new regulation, the legal representative of an enterprise must bear personal liability for damages caused to the enterprise if they violate their legal obligations. This addition establishes a stronger binding mechanism for managerial and operational decisions within the enterprise.
2. New Provisions on Personal Liability of Legal Representatives
Under the new regulation, the legal representative of an enterprise is not only responsible for exercising rights and obligations on behalf of the enterprise in civil and commercial transactions. In cases where managerial obligations are breached or where actions cause damage to the enterprise, the individual legal representative may be held legally liable for the resulting consequences. This reflects a shift from collective responsibility to clearer individual accountability in corporate governance.
This provision also imposes higher standards on management and decision-making by legal representatives. When making significant decisions related to business strategy, investment, or internal governance, the legal representative must comply with principles of honesty, prudence, and acting in the best interests of the enterprise. Failure to fulfill these obligations may result in personal compensation liability toward the enterprise.
3. Significance of Strengthening Personal Liability of Legal Representatives
Strengthening the personal liability of legal representatives contributes to improving governance discipline and preventing violations in enterprise management. When personal accountability is clearly defined, legal representatives are more strongly incentivized to perform their duties with caution and transparency. This helps minimize risky decisions or abuse of authority that may cause damage to the enterprise.
Furthermore, the new regulation enhances the protection of stakeholders such as shareholders, capital contributors, employees, and business partners. When legal representatives are personally liable for violations, these stakeholders gain an additional mechanism to safeguard their lawful interests. This also increases investor and partner confidence in the business environment in Vietnam.
4. What Should Enterprises Do to Comply?
In response to this legal change, enterprises should review all internal regulations related to the functions and powers of the legal representative. The company charter, employment contracts, as well as appointment or authorization decisions for the legal representative must be updated to align with the new legal framework. Clearly defining the scope of responsibilities and authority will help minimize disputes and legal risks in corporate governance.
In addition, enterprises should establish internal control mechanisms to ensure that management decisions are reviewed and approved in a transparent manner. Such mechanisms may include multi-level approval processes, oversight by the Board of Directors or Membersβ Council, and internal audit systems. In many cases, enterprises should also consider obtaining Directors and Officers Liability Insurance (D&O Insurance) to mitigate financial risks arising from legal disputes.
5. Recommendations from DNP Viet Nam Law Firm
Based on extensive practical advisory experience with both domestic and foreign enterprises, DNP Viet Nam Law Firm recommends that enterprises proactively reassess their governance structures and internal control mechanisms. The increase in personal liability of legal representatives requires that management decisions be more carefully considered and subject to appropriate oversight. A transparent and law-compliant governance system will help enterprises mitigate risks and achieve sustainable development.
If enterprises require detailed advice on the personal liability of legal representatives, review of company charters, or the establishment of governance mechanisms in compliance with the amended Law on Enterprises 2025, the legal team at DNP Viet Nam Law Firm is ready to assist. We provide comprehensive legal solutions to help enterprises safeguard their interests and operate effectively within the current legal framework.
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