Last updated: Tuesday, March 19, 2019


Legal Knowledge Helps Limit Legal Risks in Business

Posted: Wednesday, December 05, 2018

In order to prevent and control legal risks in business, companies must have deep knowledge of the Law on Enterprises 2014, which specifically provides that an enterprise must have a legal representative or authorised representative to conduct civil transactions.

This information is shared by Mr Tran Huu Huynh, Chairman of the Vietnam International Arbitration Centre (VIAC) at the Workshop on “Controlling legal risks in business” held by the Vietnam Chamber of Commerce and Industry (VCCI) in cooperation with the United States Agency for International Development (USAID) in Hanoi.

Legal risks may arise from many business aspects, from the risk of not executing social responsibility (e.g. causing environmental pollution, infringing regulations on wildlife animal protection) and signing careless contracts to the risk of being inspected labour and social insurance, undergoing wage claims, or getting involved in labour lawsuits against employers. Risks usually occur from cases where contracts are established through a legal representative; deals are concluded by the branch or the company; and deals are performed by unauthorised persons.

Depending on the business field, an enterprise needs to have basic knowledge and understand many different laws such as the Civil Code, the Law on Construction, the Law on Trade, the Law on Investment, he said. In cases where there is a need for arbitrators, the enterprise should not hesitate to boldly look for ways to handle effectively. All emerging disputes may be resolved by arbitration at the Vietnam International Arbitration Centre in accordance with the rules of arbitration.

Remarkably, in the business activity, risks also emerge from simple, unexpected and controversial happenings, even in a long time, Mr Huynh noted. For example, what is a contract and what is a deal? If the contract allows more than one legal representative, who will be responsible to the law?

According to the conventional thinking of enterprises, signing contracts with corporate seal or account is essential. However, under the current law, seals are not the property of the company anymore and, in case of contract dispute, it is vital to find out who is entitled to sign the contract rather than the corporate seal.

Particularly, enterprises need to pay attention to objective changes that may cause negative impacts on their business to ask the arbitration court for amendment to some contract contents to avoid heavy losses, he explained. This is stated in the Civil Code 2016, but not all businesses know it well.

Dr Do Ngan Binh, representative of the Legal Consultancy Centre affiliated with the Hanoi Law University, said, in labour, wage and social insurance fields, companies need to identify forms of legal risk to take effective precautions.

“Risks may come from a labour inspection, a complaint and a lawsuit. Some situations that may result in risks like termination of labour contracts as workers fail to complete their works regularly; termination of labour contracts as a result of structural change that may lead to redundancies to be removed or termination of labour contract as a result of disciplinary dismissal, lower-than-income social insurance payment,” he said.

Large enterprises do not necessarily have less risk than small and medium-sized ones. Legal risks are equal to all. It is important that large enterprises are willing to pay to limit legal risks, thus they concentrate their resources and time for business development.

Mr Nguyen Hoai Khuong from the International Traffic Organisation in Vietnam said, businesses are facing not only with legal risks and reputation risks, but also economic damage. Consumers are now more willing to pay more for products or services from companies committed to fulfilling social responsibility. Therefore, companies should make statements on inclusion of social responsibility messages on wildlife protection or show support through internal codes of conduct.


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