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Does an enterprise need the seal?

The article with the title: “Does an enterprise need the seal?” written by Lawyer Nguyen Van Quynh – Phuoc & Partners is published in Saigon Economic Times dated 09/12/2010.

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The Business Director of Company B signed an office lease contract under the letter of attorney from the General Director cum the legal representative to lease out to Company A the first floor of the building in Tan Binh District which is owned by Company B. However, Company A did not accept that lease contract because it reckoned that the contract is not valid with the reason that according to the authorized letter, the Business Director of Company B has the right to execute contracts and deal in the office lease regarding the buildings owned by Party B except the buildings in Tan Binh District which must have opinions and approval from the General Director. However, the Business Director of Company B thought that the office lease contract was still effective because it was sealed with the Company’s seal and the seal was kept by the General Director, so the sealing proved that the General Director agreed to the content of the contract. In addition, the seal also shows the legality of the contact, so there was no need for a confirmation or other documents. The argument of the two parties drove the contract into a long delay, made slow the progress of contract signing, as well as made strained the relation between the two parties.

Recently, the press has published a lot of articles about the news of the leaders of the former term of Company X did not hand over books and papers and the seal for the latter ones. In the situation of no seal, the company faced difficulties in dealing in daily works of an enterprise. A similar case happened to Company Y when the new General Director could not work because the company’s seal was in the hands of the ex-general director because the handover between that ex-general director and the Company had not been finished.

The above real stories although not very fresh and have been settled, still raise a popular problem and cause a lot arguments regarding the necessity of the enterprise seal.

Legal value of documents depends on the seal?

The Law on Enterprises stipulates that an enterprise has its own seal and the seal is an asset of the enterprise[1]. In the pure material aspect, the “seal” asset has not a significant meaning to an enterprise. The seal itself would not have a special meaning in the enterprise’s operation if the laws have not granted it the function of “showing legal position and affirming legal value of documents and papers from the State bodies, organizations and titles[2].

Until now there is no specific explanation or guidance of what “showing legal position” and “affirming legal value” is, bringing about different interpretations. On one hand, it may be deemed that documents and papers issued by bodies and organizations without the seal will not have legal value, or more precisely the legal value of those documents will not be recognized; on the other hand, it may be deemed that the documents and papers when signed with right order and authority will be lawful, and the seal only has the purpose of emphasize – “affirm” once again the value of those documents[3].

It has not been known how the matter will be dealt with in the aspect of legal argument, but it is obvious that all documents and materials of bodies and organizations will not be accepted if they are not sealed on the signature. A contract although signed by the competent representative will be returned for sealing if it has not been sealed. In the opposite, sometimes the receiver of a document does not need to verify the competence of the signer if the document is validly sealed. It seems that in the mind of most people, the seal is a security instrument for the signature of the signer in any document of an enterprise.

The role of the seal in civil and commercial transaction

There is a paradox that the seal “affirms legal value of documents, materials, etc.” while commercial and civil legal regulations do not require the seal in contracts or other transactions in case the transactors are units that have been granted the seal, although there is still the regulation for the case of invalid civil transaction due to in compliance of the regulation on the form[4]. If we reckon that a civil transaction executed with documents shall be naturally accompanied with the seal because the seal secure the legality of documents and materials issued by enterprises, it is not persuadable since until now there has not been any document mentioning this issue. Although civil transactions not in compliance with the regulation on the form may be invalid, but the validity, in this case, is quite flexible because the court and other competent State authorities still allow the parties a specific duration of time to adjust the form of the transaction[5], i.e. sealing the contract in this case. We can see that characteristics of the form of a civil transaction are not as important as the status of the subject executing the transaction as well as the will of the parties in that transaction. After all, whether a seal available or not is not an essential issue in execution and performance of a specific transaction. Currently, there has not been any judgment or decision concluding that a civil or commercial contract is invalid due to the absence of a seal of the executing subject.

In the aspect of legal safety of civil transactions with the purpose of avoiding the forgery and cheat, the seal is easily lost, dropped, stolen or usurped (in reality, the correspondence department, secretary or cashier may be assigned by the legal representative to keep the seal when he/she is absent or even when he/she is present), while the signature of the competent person goes closely with the signer himself/herself and it is one of the characteristics for identifying and distinguishing between one and another person, hence the signature of the entitled person is a necessary and sufficient condition for the validity of the document without any other security instrument.

It is worthy to note that although the written legal regulations accept the role of the seal, in the process of social development that role has not much meaning in electronic transaction and commercial contract[6] recognized by the Laws.

The seal and the worry from many sides

The seal is important (according to the viewpoint of the State), hence the laws prescribe in detail the uniform seal form, the second seal, procedure of application for the seal, change of the seal and application for the first seal, certificate of seal registration, etc. The seal is so important to an enterprise that it shall not be used freely and kept by anybody, but the legal representative of the enterprise shall be responsible for the use and management of the seal[7]. It is worthy to note that the “use and management of the seal” of an enterprise is not a privilege granted to the legal representative of the company, but in the aspect of legislation technique (“shall”) it is the obligation of the legal representative.

That obligation forces the legal representative to be disciplined, be administrative fined, and also be prosecuted for criminal liability, subject to the seriousness of the breach if he/she breach the regulations on the use and management of the seal[8], even when the seal has been assigned to another person for management, the legal representative still bear the final liability. In case the legal representative is a foreigner, the obligation of use and management of the seal will certainly bring some worries and insecurity because the documents to be sealed daily are not always in his/her mother tongue. In that case, he/she has to be resigned relying upon the faithfulness of the assistants.

The legal representative of an enterprise is not necessarily the person holding highest power in the enterprise, and not necessarily the owner of the enterprise, but the person who is in the name and on behalf of the enterprise in front of the laws and all other individuals and organizations regarding all issues of the enterprise; and as an indispensable consequence, is surely the person entitled to hold the instrument of legality security of documents, papers and materials of the enterprise. The laws seem to be close to decide assigning the seal to the legal representative for use and management, but at last, it turns out to raise social problems in recent time regarding the seal and the person keeping it.

Regarding the cases of Company X and Company Y as mentioned in the first part of this article, not to mention the true-false issue and the  consciousness of law compliance of the persons who were “gripping” the seal for their personal purpose, first of all the business operation of the enterprise was seriously impacted due to the seal.

There are also many cases in which the legal representative is a hired one, and when the operation is not smooth, leading to the termination of the job, the director who leaves the enterprise brings with him/her nothing but the seal, raising a series of corollaries that nerve-rack the enterprise. The enterprise, in one hand, reports the matter to the police and in the other hand struggles to settle the works in the status of no seal, and also worries that the seal may be used arbitrarily for the purpose of harming the enterprise. The enterprise may feel a little bit secure if the legal representative is a Vietnamese, but if he/she is a foreigner and has left Vietnam the matter will be more difficult to be settled and controlled.

Although laws on enterprises compel the legal representative to use and manage the seal, Article 25.2 of Decree 101/2004 regarding correspondence work assigns the right of managing the seal to the correspondence clerk. Here we can find again the overlap in the management of the seal.

The old stories about the forgery of seals as well as the forged seals are created more and more sophisticatedly by the time and difficult to be discovered raise from everybody’s awareness and also the laws the importance of the seal. Therefore, a little seal even has the power to bring more responsibility of social management of the authorities in seal granting, seal investing and dealing with the offence of seal forging.

Enterprises do not need the seal?

On the aspect of argument, the availability or unavailability of the seal does not change the nature of the enterprise. Without the availability of a seal, the enterprise is still an economic organization recognized under the business registration certificate or the decision of establishment. It is not a case that without a seal the enterprise is not treated as an independent entity[9], and on the contrary, with the availability of a seal, the enterprise has to expense more and also worry about the use and management of the seal, as above analyzed. In fact, the seal is becoming one of the contents affecting the ranking index of the advantage of the business environment in Vietnam. Currently, many countries in the world do not consider the seal as a mandatory standard of an enterprise. A personal seal, as well as enterprise seal, may be registered on a voluntary basis on demand. Therefore, documents and materials of an enterprise will not be invalid without the seal. The verification of the signature of the competent person will be based on the examination result, sample signature or internal documents of the enterprise regarding the competence assignment. I should think that in the future the State should revoke the prescriptions regarding the seal of enterprises in order to simplify the administrative procedures and lessen unnecessary problems and consequences arising from the seal.

[1] Article 36 of Law on Enterprises 2005

[2] Article 1 of Decree 58/2001/NĐ-CP regarding the use and management of the seal

[3] Is it necessary to re-affirm the legal value?!

[4] Article 134 of the Civil Law 2005

[5] Article 134 of the Civil Law 2005

[6] The Law on Electronic Transaction No. 51/2005; Decree 57/2006/NĐ-CP regarding electronic commerce

[7] Article 36 of the Law on Enterprises 2005

[8] Article 13 of Decree 58/2001/NĐ-CP regarding the use and management of the seal

[9] Article 84 of the Civil Law 2005

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