One of the most salient points of the 2014 Enterprise Law is reforming the management and use of corporate seals, aiming to further facilitate investors’ market access and enterprises’ business operations. This article highlights the Law’s new provisions on corporate seals and other relevant regulations on seal management and use. It then puts forward some recommendations to thoroughly reform regulations on corporate seals.
Nguyen Tuan Vu
Ho Chi Minh City University of Law
Rights of enterprises over their seals under the 2014 Enterprise Law
The 2014 Enterprise Law (2014 Law) fully demonstrates its reformatory spirit in just one article, Article 44, on corporate seals. Through this article, the 2014 Law introduces several key changes in the management and use of corporate seals in comparison to the 2005 Enterprise Law (2005 Law).
|Manufacturing line in wholly Japanese-invested INOAC Vietnam Co., Ltd., in Quang Minh industrial park (Hanoi) __ Photo: Danh Lam/VNA|
Right to decide on the quantity of seals
Unlike the 2005 Law, the 2014 Law allows enterprises to decide by themselves on the quantity of their seals. From the view of lawmakers, “the right to decide on the quantity of the seal” can be understood as the right to decide to use: (i) only one seal; (ii) more than one seal; or (iii) no seal.
The right to decide on the quantity of the seal will help enterprises use their seals in a proactive and flexible manner suitable to their need and business situation. When necessary, enterprises may use multiple seals to serve their business activities. This is especially good for enterprises that have a wide network operating in different localities.
However, for businesses that do not need to use a seal, can they choose not to have one? At present, this question remains unanswered. Although the first and second versions of the draft decree guiding the implementation the 2014 Law clearly permit enterprises to decide to use or not to use a seal, the officially issued decree, No. 96/2015/ND-CP, makes no reference to this issue.
Right to decide on the content and form of seals
Before the 2014 Law comes into force, the form and content of seals must comply with governmental regulations. From July 1, 2015, enterprises may decide on the content and form of their seals. An enterprise’s seal must display its name and identification number. In case an enterprise has more than one seal, these seals must have the same content and form. In developed countries, seals are more likely regarded as a symbol of enterprises rather than their legal status. In the course of operation, the seal may become a symbol that constitutes the image and prestige of an enterprise.
Right to manage and use seals
Under the 2005 Law, the seal of an enterprise must be preserved at the enterprise’s head office and its at-law representative is responsible for managing and using the seal under regulations. This implies that the at-law representative is the only one who is entitled to use the seal. This regulation has led to inconveniences and risks in reality. For example, in case of signing a contract outside the enterprise’s head office, its at-law representative must carry the seal with him to affix on the contract. In another case when the at-law representative of an enterprise unexpectedly gets a contract at a place far from its head office, the time of waiting for seal affixture may affect this business opportunity. This is not to mention the fact that the task of managing and affixing the seal is normally authorized to clerical staff.
The 2014 Law has solved all these problems simply by stipulating that seals shall be managed and used in accordance with company charters. Since the charter of a company is compiled by company founders, it is the law of the company. The 2014 Law allows company founders to decide on matters related to seal management and use.
State management of corporate seals
With the enactment of the 2014 Law, the mechanism of state management of corporate seals has been changed toward openness and favoring enterprises.
Previously, one of the first activities that an enterprise has to do before inaugurating operation is to apply for a seal engraving permit from the public security agency. This formality is actually a hindrance to investors’ market entry. In the market economy nowadays, businesses are facing fierce competition. At the early stage of market entry, enterprises should focus on developing their investment and business strategies rather than spending time on cumbersome formalities.
Therefore, the 2014 Law has discarded this formality. According to the 2014 Law and Decree No. 78/2015/ND-CP on business registration, before commencing to use seals, destroying seals or changing the quantity of seals, enterprises are only required to notify seal designs to the business registration agency for posting them on the national e-portal on enterprise registration. Such notice should state the enterprise’s name, identification number, address of head office and the quantity of the seal, seal design and effective time of seal use. This notice just aims to inform the public and third parties of the seal and help investors easily learn about their partners. The removal of the formality also helps reduce workload for state management agencies.
Use of corporate under the 2014 Law and other laws
As per the 2014 Law, corporate seals must be used in the cases prescribed by law or agreed by the parties. At present, many legal documents require enterprises to affix their seals on papers used in transactions with state agencies. For example, when an enterprise wishes to initiate a lawsuit against a person, an organization or a state agency for infringement upon its lawful rights and interests, the enterprise’s at-law representative must sign and seal the petition. In many cases, the court may refuse to receive lawsuit petitions that bear no seal. An enterprise with import and export activities must seal customs declarations filed with customs agencies. Similarly, it is compulsory for businesses to seal papers used in transactions with tax agencies.
Seals are still required for transactions and contracts between enterprises and their customers and partners in many fields. For instance, an enterprise enters into a technology transfer contract must seal such contract. It must also seal construction contracts, joint bidding agreements and housing contracts. This means that, in order to maintain their normal operations, enterprises still have to use seals.
The above examples show that Vietnam still needs a thorough reform on corporate seals, not requiring enterprises that have chosen not to use a seal to seal transaction papers.
The first job that needs to be done right now is to draw up a roadmap for thorough reform on corporate seals.
Although the 2014 Law empowers enterprises to make their own decisions on matters related to their seals, it is not an easy task to realize such provision. This is due to the fact that the habit of using seals has been deeply rooted in the business life. Moreover, seals are also regulated by various legal documents. In order to thoroughly reform the management and use of corporate seals, it is necessary to draw up a specific roadmap and reach consensus among state management agencies. To this end, in the time to come, when promulgating new legal documents or amending existing ones, it is necessary to abolish provisions requiring enterprises to affix seals.
The second matter to be dealt with is provisions on the form of corporate seals. According to the 2014 Law, enterprises are entitled to decide on the form of their seals. Before commencing to use such seals, enterprises just have to send a notice of seal designs to the business registration agency. However, according to Decree No. 78/2015/ND-CP, business registration agencies will not be held responsible for any anti-ethical and anti-cultural aspects of seal designs. Then in case a seal design violates historical, cultural and ethical traditions and fine customs of the country, may it be used? If not, which agency will handle the case? And how the case will be handled? In order to avoid arbitrariness in the designing of seals, a legal document should be issued to guide enterprises on this issue. More specifically, it is necessary to clarify cases in which a seal will be regarded as containing words, signs and images that violate historical, cultural and ethnical traditions and fine customs of the country.
The third issue is to raise the role of company charters. Realities show that the use of seals may lead to disputes within companies. In order to avoid these disputes, company charters must contain clear and specific provisions on seals such as the quantity of seals, who will be entitled to manage and use seals and whether or not companies’ contracts or transactions must be affixed with seals. Above all, enterprises should create for themselves a strict mechanism in order to use their seals in the most effective way while ensuring safety in business operations. When seal-related disputes or risks arise, enterprises and their related persons will be held responsible before law for their violations.-
Clause 1, Article 44 of the 2014 Law: “Enterprises may decide by themselves on the form, quantity and contents of their seals.”