Tran Nguyen Tam Huong
Russin & Vecchi
From physical seals to digital signatures
In Vietnam, the physical corporate seal has been the traditional mark of authority, consent, and legitimacy, and for generations it has projected the authority of the office. It was carefully guarded and remained under the control of a senior officer. But the role of the physical seal has changed. Today, the physical seal has less significance. Under the latest version of the Law on Enterprises (LOE), which was passed on June 17, 2020, and came into force on January 1, 2021, both a physical seal and a digital signature are acceptable forms of the corporate seal.
Let’s first review regulations on the physical corporate seal under different versions of the LOE:
* Under the 2005 LOE, which came into force on July 1, 2006, a company was obliged to register its physical seal with the Public Security Department and would be issued a seal specimen registration certificate; counterparties could easily verify the company’s physical seal through this certificate.
* Under the 2014 LOE, effective as of July 1, 2015, the specimen of a company’s physical seal no longer needed to be registered but had merely to be “notified” to the provincial-level Department of Planning and Investment; counterparties could verify the physical seal through the National Business Registration Portal (NBRP).
* Under the 2020 LOE, all above-mentioned regulations changed. From January 1, 2021, the effective date of the 2020 LOE, a company is no longer required to register or notify its seal to authorities and therefore does not have a certificate authenticating its seal. It is difficult for a counterparty to verify the seal. Even so, the company’s charter may carry an imprint of the seal which counterparties may refer to in order to verify the company’s physical seal. If the company’s charter does not have an imprint of the physical seal, there is no way to verify the physical seal of a company formed after January 1, 2021. (Please keep in mind that a company’s charter is not a public document and must be provided by counterparties).
When a company’s physical seal is stamped on a document, it is accompanied by the signature of an authorized person, usually the company’s at-law representative. When the physical seal is used together with the signature of the at-law representative of the company, it continues to demonstrate a commitment by the company. The company can continue to use its physical seal accompanied by the “ink” signature of a qualified signatory, on both internal and external documents. Seals previously “registered” or “notified” under prior law may still be verified.
If a company still wants to use a physical seal, it may do so. It may decide the type, form, and contents of its seal. The seal may be round, rectangular, triangular as the company chooses. It may be affixed with ink of any color, red, black, green, etc. The point is that such a new seal is neither publicly registered nor notified to any state authority and it cannot be verified.
Where physical seals cannot be verified, parties must rely on the authority of the signatories themselves. If the signatory is the company’s at-law representative, the signatory’s position as at-law representative can be verified through the NBRP. If not, a written authorization letter from the at-law representative can be obtained to confirm the signatory’s authority. If there are any limits on the at-law representative’s authority, especially in case a company has more than one at-law representative this limitation is only referred to in the company’s charter. But again, charters are not public documents. The inability to easily verify the limits of the at-law representative’s authority places an added burden on parties who previously could rely on the authority of the physical seal. Because physical seals cannot be verified, the use of the corporate seal will likely continue to diminish. However, the issue of seals apart, the inability to verify the authority of a signatory (if, for example, his/her authority is limited) will continue to be a problem.
In case a company issues an electronic document, it has another tool that can assure the validity and authenticity of the document, i.e., digital signature.
A digital signature is a type of e-signature and is issued by companies licensed by the Ministry of Information and Communications (MIC). In essence, it is exactly the same as a handwritten signature, except for the fact that it is digitalized. It is used to verify the identity of the signer by providing an encrypted stamp of authenticity. A digital signature can be verified through the website of the MIC’s National Electronic Authentication Center (NEAC) at https://neac.gov.vn/en. As electronic documents gradually replace hard-copy documents in transactions, the value of a digital signature which can be verified by counterparties becomes obvious. If electronic documents are used in transactions, digital signatures will assure the validity and authenticity of such documents. They will also supplant the current request for a “corporate seal” and a “wet signature”. While the public is generally acquainted with a physical seal, less sophisticated entrepreneurs and foreign investors seem unsure of the effect of digital signatures.
But while Vietnam recognizes digital signatures as one way to show the authenticity of a signature, and while their use is growing, their use has not yet become widespread. A digital signature is a specific type of e-signature that complies with strict legal regulations. It is controlled by the company itself, and as such, it provides the highest level of assurance of a signer’s identity. It employs an encryption technology that renders it difficult to forge or tamper with. A digital signature has the benefit of being expressly recognized as satisfying any legal corporate seal requirement. A digital signature does away with the need for a physical seal.
When a signer sends a digitally signed document, he/she must also send a digital certificate to let the counterparty verify his/her digital signature. A digital certificate is also an electronic certificate granted by the digital signature service provider. Simply put, it is like an identity card or passport. Its role is to confirm the identity of the signatory who uses the digital signature. Thus, a digital certificate is understood to prove the validity and legitimacy of the digital signature of an individual or organization. A digital certificate is usually valid for a certain period, after that, the signer must renew, or get a new, signing certificate to establish his/her identity.
However, the authority of the person whose digital signature is used can also be limited. Limitations, if any, could appear in the charter, which, again, is not a public document. The use of a digital signature does not remove a counterparty’s need to assure itself that the signatory of a document has the necessary authority.
If a legal representative misrepresents his/her authority, even if stated in a nonpublic charter, the counterparty who relies on the signature is protected except (i) where the counterparty knew that the at-law representative had exceeded his/her scope of authority, but still carried out the transaction and (ii) where the counterparty and the unauthorized person deliberately enter into or conduct the transaction. If the at-law representative acts beyond the scope of her authority, the counterparty has the right to terminate the transaction unilaterally or to rescind any part of it which is beyond the scope (or indeed the whole transaction) and may demand compensation for any loss.
In case an offshore company licensed or approved to operate in Vietnam wants to use its foreign digital signature in Vietnam, the foreign digital signature and accompanying digital certificate (issued abroad) must be licensed by the MIC. Once the foreign digital signature is authorized and digital certificate is accepted, they are legally valid and as effective as digital signatures and digital certificates provided within Vietnam.
Some foreign-invested companies in Vietnam also use DocuSign, an electronic signature service provided by an American company, for documents which are not intended for filing with the Vietnamese Government (internal meeting minutes, commercial agreements, etc.). Very broadly, it is a method to sign a document and parties may agree to use DocuSign for commercial transactions at their own discretion. But as DocuSign is not legally valid in Vietnam, it will not be accepted by governmental authorities. Even as between two companies, it may be difficult to establish that its use by one party is a clear statement of that party’s commitment as it provides no linkage to a qualified signatory. License or approval may be in the form of an Investment Registration Certificate, Enterprise Registration Certificate, branch license, representative office license or it may be one party of a business cooperation contract or other similar certificate/approval.
Lastly, what about manual “ink” signatures and the corporate seal? Manual “ink” signatures do not replace the corporate seal even if the ink is “wet” – that is, even if it is an original document. If regulations require a corporate seal, requirement of the seal is satisfied only if the document is stamped with a legitimate physical seal or is accompanied by a qualified digital signature. When a corporate seal is not required by law or charter, a document is valid when it is signed by a fresh-ink signature of a person who has the authority to act in the matter. As discussed above, authority is not always easy to determine. Again, the signer must have the authority to execute a document.
The current muddle
Requirements regarding the need for a seal on a document are scattered across different specialized laws (e.g., on construction contracts or on account books). The result is that companies must determine whether a corporate seal is required by statute in particular transactions or filings. If so, a document without a corporate seal may be invalid.
In addition to the law, a company’s charter can provide circumstances in which the corporate seal is required. That is, the 2020 LOE gives an enterprise freedom to regulate the use of its corporate seal. Although perhaps unlikely, a company may specify in its charter or internal rules when the use of its corporate seal is required.
Practically, most companies do not provide for the management and use of the corporate seal, physical or digital, in their charter because these matters are not a compulsory part of the charter under the 2020 LOE. Moreover, even if they were, as mentioned, a charter is not a public record. Thus, third parties need to be extra cautious on use of a seal or failure to use a seal by a counterparty and on the limits of a signatory’s authority (if limits exit). There are obvious dangers of misuse.
Companies should have a separate and well-articulated policy on seals to guard against improper use by unauthorized persons, and they should have a means to communicate the policy.
The corporate seal may, but need not, be affixed to a corporate document except in those circumstances when a seal is required by law or by the company’s own charter. In cases where a seal is not required by law in the corporate charter, the corporate seal’s absence has no impact on the validity of the document. However, of course, an authorized signatory must sign.
Old habits die hard. With a long-established habit of using a physical seal, some governmental authorities continue to ascribe importance to the physical seal and may require having a physical seal even in cases where the law no longer requires it. It may take time for Vietnam to replace the mentality surrounding physical seals and to reorient itself to the concept of digital signatures.
Expect that some companies may continue to use a physical seal alongside a digital signature until use of digital signatures becomes commonplace.-