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Does a company need to register its scope of business?

The article with the title: “Does a company need to register its scope of business?” written by Lawyer Tran Thanh Tung & Lawyer Pham Thi Minh Trang – Phuoc & Partners Law Firm is published on Saigon Economic Times dated 27/10/2011.

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Simple questions, no easy answers

A company has been granted a business registration certificate as a travel service provider. Can it carry out activities such as vehicle rental booking, air booking, accommodation reservation and purchasing entrance tickets to museums, historic and cultural sites, or buying theater tickets for its customers? Another case, a company (not a financial or credit institution) wants to provide loans to its employees for their personal purposes. Is the loan contract between the company and its employees legitimate? Is it possible if a parent company grants a loan to a subsidiary for its operation? At present, if an enterprise enters into contracts for activities beyond its registered activities, those contracts will be deemed void by the court. Thus, the loan contracts between the enterprise and its workers, or the loan agreement between the parent company and its subsidiary will not be accepted by the court, for the reason that the lending companies have not registered “lending” as one of their purposes of incorporation even though this is an ultimate demand of many companies.

An enterprise’s activities of occupation are restricted within those enlisted by the Government, and have to be stated in the certificate of incorporation, which has hindered a lot of opportunities for a company. For this reason, is it necessary that an enterprise should register its business scope of business?

Purposes of a company

 To answer the above question, perhaps we should come back to an important one: what is the purpose of the incorporation of a company? The Civil Code regulates that a company is a legal entity (except for a private enterprise), which has civil rights and responsibilities in accordance with the purpose of their activities. According to the Enterprise Law, a company is formed to conduct business activities, or in other words, to gain profit. Thus, based on the Civil Code and the Enterprise Law, a company is established for the utmost purpose of “profit making,” which all of its activities are aiming at, and the type of business the company is conducting is just a means to obtain this goal. From this perspective, let us find an answer to the case of the above travel service provider. Everybody presumes that a travel service provider can render services like vehicle rental booking, air booking, accommodation reservation and purchasing entrance tickets to museums, historic and cultural sites, or buying theater tickets. However, it is almost impossible to define boundaries of these services. If the company is asked to rent an aircraft, a submarine, or a spacecraft for the tourism purpose, are leases for these legitimate? As for the question of the loan agreement between a company and its workers, that company wants to attract employees with financial supports so that these employees will stick with the company. This is also for the sake of profit, and so is the loan agreement between the parent company and its subsidiary. There is a contradiction here in the law of Vietnam where it allows companies to obtain loans from overseas companies (regardless of types of business) while it prohibits companies from loans from local companies that are not financial or credit institutions.

An alternative solution

 As analyzed above, the business occupation a company is conducting is only a means to earn profit. Trying to grasp a full extent of business occupation is a hard and complicated thing to do, since they are becoming increasingly diverse in activities. Although the Civil Code and the

Enterprise Law acknowledge the ultimate goal of making profit of a company, by forcing a company to conduct business within the registered scope of business, the Enterprise Law is contradictory by itself, and has limited the rights of a company. We can find other solutions to unleash companies. One of the approaches is to set them free from registering their scope of business activities. In this way, the registry authorities will grant certificate of incorporation which just confirms the formation of a company. The company will decide which trades or scope of business it engages in, and will be responsible for indicating the purpose of the company, organization and management structures in its articles of incorporation. The question is if not asked to register scope of business, can a company do anything, including illegal activities? It is actually not the case. A company operates within the boundaries of the governing law. Under the Enterprise Law, a company must not jeopardize the national defense and security, public safety, traditions, culture, ethics and customs, public health, or destroy natural resources and environment, or engaging in scope of business that are prohibited by law (under Article 7 of the Enterprise Law). The elimination of occupation registration will help clarify the boundaries of Article 7, not removing them. Besides, a company has to abide by the Enterprise Law and/or the regulations of the area of business it is conducting. Now it is time to strengthen the role of “inspection” of the relevant authorities. It is time to modify the procedures required when registering a business, in a manner that sheds off unnecessary formalities, including the elimination of occupation registration for a company.

(*) Phuoc & Partners Law Co.

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