Hiring a Director to act as the legal representative is a common practice among enterprises currently. The article below outlines the legal regulations governing such a matter and addresses several related questions to help individuals and organizations protect their lawful rights and interests.

I. Introduction to issues relating to hiring a director as the legal representative

Hiring a Director to act as the legal representative is a common solution that enables enterprises to optimize management efficiency, particularly where the owner does not directly operate the business. It involves the enterprise entering into an employment contract with an individual to manage, operate, and assume legal responsibility on behalf of the company.

Such a model facilitates the separation between ownership and management, reduces legal risks for investors, and allows enterprises to benefit from professional managerial expertise.

II. Understanding the concept of hiring a director as the legal representative

1. What is meant by hiring a Director to act as the legal representative?

Pursuant to Clause 1, Article 12 of the Law on Enterprise 2020 (as amended in 2025), the legal representative of an enterprise is an individual who represents the enterprise in exercising rights and performing obligations arising from the enterprise’s transactions; represents the enterprise as the petitioner in civil matters, plaintiff, defendant, person with related rights and obligations before Arbitration and the Court; and executes other rights and obligations prescribed by law.

Under Clause 1, Article 63 and Clause 2, Article 162 of the Law on Enterprise 2020 (as amended in 2025), a Director in a multiple-member limited liability company is a person responsible for managing the company’s daily business operations and is accountable to the Members’ Council for the performance of assigned rights and obligations. Meanwhile, in a joint-stock company, the Director is responsible for day-to-day business management, operates under the supervision of the Board of Directors, and takes responsibility before the Board of Directors and the law for performing assigned duties.

2. What are the principal roles of a hired Director acting as the legal representative?

Hiring a Director to act as the legal representative plays an important role in the management and operation of an enterprise, including:

  • Minimizing legal risks: The hired individual is typically knowledgeable in legal matters and helps ensure the company’s operations comply with regulations on taxation, social insurance, labor, and other legal obligations. Directors are generally selected based on their management capability and business experience to support sustainable business growth.
  • Professional management: Separating ownership from executive authority allows business decisions to be made more objectively and professionally.
  • Operational flexibility: Business owners are not required to directly hold the title of legal representative, creating flexibility when replacing management personnel.

Accordingly, hiring a Director as the legal representative primarily serves the purpose of operating business activities and representing the enterprise in legal and commercial transactions.

3. How does hiring a Director as the legal representative differ from appointing a Director in the ordinary position?

- Role

  • Hiring a Director as legal representative: The company enters into an employment contract with an external individual to assume the Director position, granting rights and obligations under the employment contract while simultaneously conferring the rights and obligations of the legal representative.
  • Ordinary appointment of a Director: The Director is appointed from among members/shareholders of the company through a Resolution or Decision of the Members’ Council or Board of Directors in accordance with the company charter and applicable laws.

- Legal responsibility

  • Hiring a Director as legal representative: The hired Director takes personal liability and responsibility arising from transactions conducted on behalf of the enterprise before competent authorities.
  • Ordinary appointment of a Director: The Director remains accountable to the Members’ Council or Board of Directors for performance of assigned duties.

4. What ethical risks and conflicts of interest may arise when hiring a Director as the legal representative?

Hiring an external Director who simultaneously acts as the legal representative is a widely adopted model for professionalizing management structures. However, it may involve significant ethical risks and conflicts of interest, including:

- Control and abuse-of-authority risks: Since the Director acts as the legal representative, they are empowered to bind the company in legal transactions. Without effective oversight mechanisms, owners may face the following concerns:

  • Exceeding authority: The Director may enter into contracts beyond the company’s financial capacity or inconsistent with the owner’s strategic direction.
  • Unfavorable transactions: Agreements may be concluded that benefit the Director personally or affiliated parties while harming the company.
  • Misuse of company assets: Company assets, business secrets, or corporate reputation may be exploited for personal gain.

- Conflicts between personal interests and company ones: A hired Director may prioritize short-term objectives over the long-term sustainable development expected by the owners.

Therefore, enterprises should carefully supervise and implement internal control mechanisms to minimize ethical risks and conflicts of interest when hiring a Director as the legal representative.

III. Legal regulations relating to hiring a director as the legal representative

1. How does the Law on Enterprise regulate rights and obligations when hiring a Director as the legal representative?

Pursuant to Clause 6, Article 7 of the Law on Enterprise 2020 (as amended in 2025), enterprises have the right to recruit, hire, and employ labor in accordance with labor laws.

According to Clause 1, Article 12 of the Law on Enterprise 2020 (as amended in 2025), a Director hired as the legal representative enjoys the following rights:

  • Legal representation: To act in the name of the enterprise in exercising rights and performing obligations arising from transactions and to represent the enterprise as plaintiff, defendant, or interested party before Arbitration and the Court.
  • Executive management: To manage enterprise resources for the owner’s benefit in accordance with the company charter and employment contract.
  • Other rights and obligations: As provided in the company charter, resolutions, decisions of the Members’ Council, and employment agreements.

At the same time, Article 13 of the Law on Enterprise 2020, as amended by Clause 4, Article 1 of the amending law 2025, imposes the following responsibilities on legal representatives:

  • Performing assigned rights and obligations honestly, prudently, and to the best of their ability to protect the lawful interests of the enterprise;
  • Remaining loyal to the enterprise and refraining from abusing position, authority, information, trade secrets, business opportunities, or company assets for personal benefit or the benefit of others;
  • Promptly, fully, and accurately disclosing information concerning enterprises owned or invested in by themselves and related persons in accordance with the law.

The legal representative takes personal liability for damage caused to the enterprise due to violations of the above responsibilities.

2. What are the procedures for changing the legal representative when hiring a Director to serve in this capacity?

Pursuant to Article 43 of Decree No. 168/2025/ND-CP, the procedures include:

- Step 1: Preparing the application dossier, including:

  • Application for registration of change of legal representative;
  • Certified copy or original of the Resolution/Decision approving the change of legal representative.

- Step 2: Submitting the dossier and paying applicable fees

  • Submission may be made directly, electronically, or by postal service depending on the local business registration authority.

- Step 3: Receiving and processing

The provincial business registration authority issues an acknowledgment receipt and appointment notice. Within three working days from receipt:

  • If the dossier is valid, the authority issues an Enterprise Registration Certificate;
  • If invalid, the authority notifies the enterprise in writing of required amendments or supplements.

3. What process should be followed when disputes arise from hiring a Director as the legal representative?

The Law on Enterprise 2020 (as amended in 2025) does not provide a specific dispute resolution mechanism for such a matter. However, disputes may be resolved through the following mechanisms:

  • Resolution under the company charter: Pursuant to Point h, Clause 2, Article 24, the company charter must contain principles for resolving internal disputes among shareholders, between shareholders and the company, and between shareholders and managers. Accordingly, disputes should first be handled under the charter.
  • Resolution through labor mediators or labor arbitration councils: Under Articles 188 and 189 of the Labor Code 2019, disputes arising from hiring a Director as legal representative may be subject to labor mediation before request for arbitration or court proceedings, except where mediation is not mandatory. By agreement, parties may also submit disputes to a Labor Arbitration Council.
  • Court or arbitration proceedings: Where internal resolution and mediation fail, disputes may be resolved before the Court or Arbitration in accordance with procedural laws upon request of the affected party.

In conclusion, disputes arising from hiring a Director as the legal representative should be addressed through the above mechanisms depending on the nature of the dispute and applicable legal instruments.

IV. Questions regarding hiring a director to act as the legal representative

1. How are tax obligations and social insurance handled when hiring a Director as the legal representative?

Under the current Law on Enterprise, enterprises are not prohibited from hiring a legal representative. Accordingly, an enterprise may appoint an external individual as its legal representative without requiring such individual to be the owner, member, or shareholder of the company.

  • Pursuant to Clause 2, Article 13 of the Labor Code 2019, before employing an employee, the employer must enter into an employment contract with such employee.
  • Pursuant to Point a, Clause 1, Article 2 of the Law on Social Insurance 2024, mandatory social insurance participants include employees working under indefinite-term employment contracts or fixed-term employment contracts with a duration of at least one month, including arrangements under different titles where the substance reflects remunerated work under the management, direction, and supervision of one party.
  • Pursuant to Clause 2, Article 3 of the Law on Personal Income Tax 2007, as amended by Clause 1, Article 1 of the amended Law on Personal Income Tax 2012, taxable income includes salary and wage income, including remuneration and salary-like benefits.

Accordingly, personal income tax constitutes the amount withheld from an individual’s salary or other taxable income sources after allowable deductions.

2. Is it necessary to update information on the Enterprise Registration Certificate when hiring a Director as the legal representative? Why?

Pursuant to Clause 1, Article 43 of Decree No. 168/2025/ND-CP regarding registration of changes to the legal representative of limited liability companies and joint-stock companies, where there is a change in the legal representative, the company must submit an application for amendment of enterprise registration information to the provincial business registration authority where its head office is located.

Additionally, Clause 1, Article 57 of Decree No. 168/2025/ND-CP provides that where an enterprise updates or supplements information relating to titles, personal details of the legal representative, or other information in the enterprise registration dossier that does not fall under mandatory registration or notification procedures prescribed from Articles 40 to 55 of the Decree, the enterprise must submit a notification for information update to the competent provincial business registration authority.

3. How does the law regulate the term of appointment or contract when hiring a Director as the legal representative?

Pursuant to Clause 1, Article 82 of the Law on Enterprise 2020 (as amended in 2025), the Members’ Council or the President of a single-member limited liability company may appoint or hire a Director/General Director for a term not exceeding five (05) years to manage the company’s day-to-day operations.

Similarly, Clause 2, Article 162 of the Law on Enterprise 2020 (as amended in 2025) provides that the term of office of the Director or General Director of a joint-stock company shall not exceed five (05) years, and such person may be reappointed for an unlimited number of terms.

Therefore, the law imposes limitations on the term applicable to hiring a Director as the legal representative. In practice, if an enterprise recruits a Director to concurrently act as the legal representative, it would generally enter into fixed-term employment contracts corresponding to the statutory term applicable to the Director position rather than an indefinite-term employment contract.

4. How are civil and criminal liabilities determined if a hired Director acting as the legal representative causes damage?

The legal representative shall take personal liability for damages caused to the enterprise due to breaches of the obligations stated in Article 13 of the Law on Enterprise 2020 (as amended in 2025)

Accordingly, civil liability may include:

  • Personal liability: The Director must take personal responsibility for damages caused through breach of duty, abuse of authority, or unlawful use of company assets.
  • Compensation for damages: The Director must compensate for actual losses where contracts are executed beyond authorized scope or in violation of the employment contract or company charter in accordance with Article 143 of the Civil Code 2015.
  • Joint liability: Where the company has multiple legal representatives without clearly allocated authority, they may take joint liability for resulting damages under Clause 2, Article 12 of the Law on Enterprise 2020 (as amended in 2025).
  • Liability toward third parties (customers and business partners): The company remains liable for damages caused by the legal representative while performing assigned duties and may subsequently seek reimbursement from the hired Director where fault is attributable to such individual.
  • Criminal liability: Where the Director abuses authority for personal gain, embezzles assets, or conducts unlawful transactions causing serious damage and satisfying constituent elements of a criminal offence, such person may be subject to criminal prosecution under the Penal Code 2015 (as amended in 2017 and 2025).

V. Are you looking for a reliable legal expert to support matters relating to hiring a director as the legal representative?

The above information is intended to address common concerns regarding hiring a Director as the legal representative. With a team of experienced lawyers and legal specialists, NPLaw provides reliable and professional legal services aimed at protecting clients’ legitimate rights and interests to the fullest extent possible. If you require legal support, you may contact NPLaw for consultation and assistance.

The information above is provided for reference purposes only. Should you require advice tailored to your specific circumstances, please contact NPLaw for immediate consultation.