What is a legal person? What are the conditions of being recognized as a legal person?

The definition of legal persons is mentioned in many current legal documents. Joint LuatVietnam to find out important information related to a legal person in the article as follow.

1. What is a legal person?

The Civil Code 2015 prescribes the legal person in chapter IV. However, the Code does not supply a specific definition of a legal person. Instead, Article 74, Civil Code 2015 prescribes:

1.  An organization shall be recognized as a legal person when it meets all the following conditions:

a/ Being established in accordance with this Code and other relevant laws;

b/ Having an organizational structure as prescribed in Article 83 of this Code;

c/ Possessing property independent from that of individuals and other organizations, and bearing its liability with its own property;

d/ Independently entering into legal relations in its own name.

Accordingly, a legal person is an organization that satisfies all conditions in accordance with laws, including: legally established, has organizational structure, possesses independent property and bearing its liability with its own property, and independently entering into legal relations in its own name. 

2. Types of legal persons

There are 02 groups of legal persons based on the main objectives of legal persons, including:

2.1. Commercial legal persons

In accordance with Article 75, Civil Code 2015, commercial legal person is a legal person whose primary purpose is to seek profits, which shall be distributed to its members. Commercial legal persons include enterprises and other economic organizations.

The establishment, operation, and termination of commercial legal persons must comply with the provisions of this Code, the Law on Enterprises, and other relevant provisions of law.

2.2. Non-commercial legal persons

In accordance with Article 76, Civil Code 2015, a non-commercial legal person is a legal person that does not have the primary purpose of seeking profits; and the profits that may arise shall not be distributed to its members.

Currently, non-commercial legal persons include:

- State agencies

- People’s armed forces units;

- Political organizations;

- Socio-political organizations;

- Socio-political-professional organizations

- Social organizations

- Socio-professional organizations

- Social funds

- Charity funds;

- Social enterprises

- Other non-commercial organizations

The establishment, operation, and termination of non-commercial legal persons must comply with the provisions of Civil Code 2015, the laws on the organization of the state apparatus, and other relevant provisions of law.

3. What are the conditions of being recognized as a legal person?

In accordance with Article 74, Civil Code 2015, an organization shall be recognized as a legal person when it meets all 04 conditions as follows:

- Being established in accordance with this Code and other relevant laws;

- Having an organizational structure:

+ Must have its managing body.  The organization, tasks, and powers of the managing body of a legal person shall be stated in the charter of such legal person or in the decision on its establishment

+ Has other bodies in accordance with the decision of such legal person or in accordance with the law.

- Possessing property independent from that of individuals and other organizations, and bearing its liability with its own property;

- Independently entering into legal relations in its own name.

4. Which businesses have legal persons?

Apart from the definition of the legal person, which businesses have legal persons is a popular question.

In accordance with the Law on Enterprise 2020, there are 05 types of enterprises, including:

• Limited liability companies with two or more members
• Single-member limited liability companies
• Joint-stock companies
• Partnerships
• Sole proprietorships

Among them, only sole proprietorships are not recognized as legal persons, because in accordance with Clause 1, Article 188, Law on Enterprise 2020, a sole proprietorship is an enterprise owned by an individual who is liable for all activities of the enterprise with all his/her assets.

The owner of a sole proprietorship is liable for all his/her assets so the enterprise’s assets are not independent of personal assets.

On the other hand, in accordance with Clause 3, Article 190, Law on Enterprise 2020, The owner of a sole proprietorship shall act as the at-law representative representing the sole proprietorship as a petitioner for the resolution of civil matters, plaintiff, defendant or person with related interests and obligations in arbitration or court proceedings...

5. How is the civil liability of a legal person prescribed?

Article 87, Civil Code 2015 prescribes the civil liability of a legal person as follows:

- A legal person shall bear civil liability for the exercise of its civil rights and performance of its civil obligations established and performed by its representative in the name of the legal person.

- A legal person shall take civil liability for the obligations established and performed by founders or representatives of founders for the establishment and registration of such legal person unless otherwise agreed upon or prescribed by law.

- A legal person shall bear civil liability with its own property; shall not bear civil liability for its members for civil obligations established and performed by such members not in the name of the legal person, unless otherwise prescribed by law.

- Members of a legal person shall not bear civil liability to the legal person for civil obligations established and performed by the legal person unless otherwise prescribed by law.

6. How to establish, divide, split, merge and consolidate a legal person?

LuatVietnam would like to supply more information relating to the establishment, division, splitting, merger, and consolidation of legal persons.

6.1. Establishment of a legal person

In accordance with Article 82, Civil Code 2015, a legal person may be established on the initiative of an individual or another legal person, or under a decision of a competent state agency.

Registration of a legal person includes registration for the establishment, registration for change, and other registrations in accordance with the law. The registration of a legal person shall be publicized.

6.2. Division of legal persons

Pursuant to Article 90, Civil Code 2015, a legal person may be divided into many legal persons. After division, the divided legal person shall cease its existence; and its civil rights and obligations shall be transferred to the new legal persons.

6.3 Splitting of legal persons

Pursuant to Article 91, Civil Code 2015, a legal person may be split into many legal persons. Being different from the division of legal persons, split legal persons are not terminated with the contract.

After splitting, the split legal person and the splitting legal person shall perform their civil rights and obligations in accordance with their operational purposes.

6.4. Merger of legal persons

Pursuant to Article 89, Civil Code 2015, A legal person may be merged into another legal person. For the merger of legal persons, merged legal persons shall cease their existence. Their civil rights and obligations shall be transferred to the merging legal person.

6.5 Consolidation of legal persons

In accordance with Article 88, Civil Code 2015, legal persons may be consolidated to form a new legal person. After the consolidation, the former legal persons shall terminate their existence from the time of the establishment of the new legal person.

The civil rights and obligations of such legal persons shall be transferred to the new legal person.

6.6 Transformation of legal persons

Pursuant to Article 92, Civil Code 2015, a legal person may transform into another legal person. After transformation, the transformed legal person shall cease its existence at the time of the establishment of the new legal person; the transforming legal person shall take over the civil rights and obligations of the transformed one.

In accordance with the Law on Enterprise 2020, there are 04 types of transformation, including:

- Limited liability companies are transformed into joint-stock companies

- Joint stock companies are transformed into one-member limited liability companies.

- Joint stock companies are transformed into limited liability companies with two or more members.

- Sole proprietorships are transformed into limited liability companies, joint stock companies, and partnerships.

7. How are the dissolution and bankruptcy of legal persons?

7.1. Dissolution of legal persons

In accordance with Clause 1, Article 93, Civil Code 2015, legal persons are dissolved in the cases as follows:

- Under the provisions of its charter;

- By the decision of a competent state agency;

- Upon the expiration of the term of operation stated in its charter or in the decision of a competent state agency;

- Other cases as prescribed by law.

Before being dissolved, a legal person shall fulfill its property obligations. After all expenses for dissolution of the legal person and debts are paid, the remaining value shall belong to the owner of such legal person and capital contributors (not applicable to a social fund or charity fund).

7.1 Bankruptcy of legal persons

In accordance with the Law on Bankruptcy 2014, bankruptcy means the state of insolvency of an enterprise or a cooperative which is declared bankrupt by a people’s court.

In accordance with Article 5, Law on bankruptcy, persons having the right and obligation to file petitions for initiation of bankruptcy procedures, including: Unsecured creditors; employees, grassroots trade unions; at-law representatives, Owners of private enterprises, chairpersons of members’ councils of limited liability companies with two or more members, owners of single-member limited liability companies, or partners of partnerships...

In accordance with Article 54, Law on bankruptcy 2014, when judges issue decisions on bankruptcy declaration, assets of bankrupt enterprises or cooperatives shall be divided to pay in the following order:

- Bankruptcy costs;

- Debts of salary, severance allowance, social insurance, health insurance for workers;

- Debts arising after the initiation of bankruptcy procedures for resumption of business operation of enterprises or cooperatives;

- Financial obligations towards the State; unsecured debts payable to creditors; secured debts that have not been paid because the value of the security assets is not enough to pay the debt;

After all, expenses are paid, the remaining value shall belong to the owner of the such legal person and capital contributors.

8. Answer some questions about regulations on legal persons

8.1 How is the citizenship of a legal person prescribed?

Article 80, Civil Code 2015 prescribes the citizenship of a legal person as follows:

Article 80. Citizenship of a legal person

Legal persons established in accordance with Vietnamese law are Vietnamese legal persons.

Therefore, a legal person is established in accordance with Vietnamese law are Vietnamese legal persons.

Clause 1, Article 676, Civil Code 2015 prescribes that the citizenship of a legal person shall be determined in accordance with the law of the country where that legal person is established. Therefore, if a legal person is established in accordance with foreign law, the legal person will have the citizenship of the country that it is established.

8.2 Who is the representatives of a legal person?

In accordance with Article 85, Civil Code 2015, The representative of a legal person may be an at-law or authorized representative.

Within that, at-law representatives of a legal person include

- Persons appointed by the legal person in accordance with its charter;

- Persons competent to represent in accordance with law;

- Persons appointed by the court during the course of procedures at the court.

Persons appointed by the court during the course of procedures at the court. Besides, each representative has the right to represent such a legal person.

8.3 What does the property of a legal person include?

In accordance with Article 81, Civil Code 015, the property of a legal person includes the contributed capital of owners, founders, and members of a such legal person and other property over which the legal person may establish its ownership rights in accordance with this Code and other relevant laws.

Pursuant to Article 34, Law on Enterprise 2020, assets contributed as capital may be in the form of Vietnam dong, freely convertible foreign currency, gold, land use rights, intellectual property rights, technology, technical know-how, and other assets that can be valued in Vietnam dong.

Here is the answer to the question: What is a legal person? And relevant information