📚 Etymology Corner: The Origin of "Contract"
Before we dive into this mind-bending legal question, let's explore where "contract" comes from! 📜
The word "contract" derives from Latin "contractus" - past participle of "contrahere", meaning "to draw together" or "to bring together." It literally combines:
- "con-" (together) + "trahere" (to draw/pull)
So a contract "draws together" two parties in mutual agreement! 🤝
But here's today's philosophical puzzle: What happens when you try to draw yourself... to yourself? Can one person be both parties? Can you shake hands with your own reflection?
Spoiler alert: Vietnamese law has VERY specific ideas about this self-dealing dilemma! ⚖️✨
🎭 The Question: A Legal Riddle
The Scenario 🤔
Imagine this:
Mr. David is the Director (Giám đốc) and legal representative of Company XYZ Ltd.
As Director, David has the authority to:
- ✅ Sign contracts on behalf of the company
- ✅ Hire and fire employees
- ✅ Represent the company in all legal matters
- ✅ Execute employment contracts with staff
But here's the question that keeps lawyers up at night: 🌙
Can David, as the legal representative of Company XYZ, sign an employment contract with David, the individual employee?
In other words: Can you be BOTH sides of a contract? 🤷♂️
📊 INFOGRAPHIC: The Self-Contract Paradox
THE MIRROR SIGNATURE DILEMMA 🪞
════════════════════════════════════════════════════════
COMPANY XYZ LTD.
🏢
↓
[Legal Entity]
↓
Needs: Director
↓
Represented by:
═══════════════
│ DAVID │
│ (Director) │
═══════════════
↓
Question: Can David sign contract
on behalf of company... WITH David?
↓
┌─────────────────┴─────────────────┐
↓ ↓
PARTY A: PARTY B:
Company XYZ David
(Represented by David) (Employee)
↓ ↓
└─────────────────┬─────────────────┘
↓
SAME PERSON! 😱
↓
════════════════════════════════════════════════════════
ATTEMPT TO SIGN CONTRACT 📝
David (for Company): "I hire you!"
David (as Employee): "I accept!"
David (for Company): "Wait, who am I talking to?"
David (as Employee): "Myself!"
David (Both): "This is confusing!" 🤯
════════════════════════════════════════════════════════
VIETNAMESE LAW SAYS: 🚫
Article 141(3) of Civil Code 2015:
┌────────────────────────────────────────────┐
│ "A representative CANNOT represent the │
│ represented party to enter into civil │
│ transactions WITH THEMSELVES" │
└────────────────────────────────────────────┘
↓
TRANSLATION:
You can't sign BOTH sides!
No mirror contracts!
❌
════════════════════════════════════════════════════════
THE LEGAL LOGIC 🧠
A contract requires TWO parties:
Party A ←──── [Negotiation] ────→ Party B
(Seller) [Agreement] (Buyer)
(Employer) [Signatures] (Employee)
↓
But if both parties = same person:
↓
No real negotiation ❌
No arm's length dealing ❌
No protection of interests ❌
Risk of self-dealing ⚠️
════════════════════════════════════════════════════════
THE SOLUTION ✅
Option 1: Another company representative signs
┌─────────────────────────────────────┐
│ Board Chairman signs for company │
│ ↓ │
│ Hires Director │
└─────────────────────────────────────┘
Option 2: Authorized signatory appointed
┌─────────────────────────────────────┐
│ Company authorizes another person │
│ (VP, Manager, etc.) to sign │
│ ↓ │
│ Signs director's contract │
└─────────────────────────────────────┘
Option 3: Shareholders'/Board resolution
┌─────────────────────────────────────┐
│ Board/Shareholders approve contract │
│ ↓ │
│ Another person executes document │
└─────────────────────────────────────┘
🔍 The Legal Analysis (In a Nutshell!)
The Fundamental Principle 📜
Article 141, Clause 3 of Vietnam's Civil Code 2015 states:
"An individual or legal entity may represent multiple different individuals or legal entities but may not, in the name of the represented party, establish or execute civil transactions with themselves or with a third party whom they also represent, unless otherwise provided by law."
Translation in plain English: 🗣️
You can't wear two hats at the same time in the same transaction! You can't:
- ❌ Be the seller AND the buyer
- ❌ Be the employer AND the employee
- ❌ Be Party A AND Party B
- ❌ Sign both sides of a contract
Why This Rule Exists 🎯
This legal principle protects against self-dealing and ensures:
- 🤝 Arms-Length Transactions
- Real contracts need real negotiation
- Two separate parties with potentially conflicting interests
- Genuine give-and-take in terms
- ⚖️ Fairness and Balance
- One party shouldn't control both sides
- Protection against abuse of authority
- Prevention of conflicts of interest
- 🛡️ Protection of the Represented Party
- Company's interests protected
- Shareholders' rights safeguarded
- No opportunity for self-enrichment at company's expense
- 📋 Legal Validity
- Contracts must show genuine "meeting of minds"
- Must demonstrate independent decision-making
- Courts can invalidate self-dealing contracts
Applying This to Directors 🏢
The Director's Dual Role: 👥
A Director is:
- Legal representative of the company (đại diện theo pháp luật)
- Potentially an employee of that same company
The Problem: 🚨
- As representative, Director signs contracts FOR the company
- As employee, Director would need contract WITH the company
- Article 141(3) says: You can't do both! ❌
Therefore: ⚖️
A Director CANNOT sign their own employment contract as both the company representative AND the employee.
This would violate the prohibition on self-dealing in civil transactions!
But Wait - Must Directors Even Have Employment Contracts? 🤔
Here's where it gets interesting! Not all directors are "employees" in the traditional sense!
Vietnamese law distinguishes:
📋 Type 1: Director as EMPLOYEE (receives salary)
- Has formal employment relationship
- Receives regular wages/salary
- Subject to Labor Code
- Needs employment contract ✅
- BUT cannot self-sign! ❌
👔 Type 2: Director as MANAGER (elected/appointed)
- Appointed by shareholders/board
- May receive management fees/compensation (not "salary")
- Governed by Company Law, not Labor Code
- May not need traditional employment contract
- Position established by company charter/appointment decision
💼 The Social Insurance Question
Must Directors Pay Social Insurance? 💰
SHORT ANSWER: YES! (In most cases) ✅
Article 2, Clause 1 of Social Insurance Law 2024 specifies that the following must participate in mandatory social insurance:
Point (i): "Enterprise managers, supervisors, state capital representatives, enterprise capital representatives as prescribed by law; members of the Board of Directors, General Director, Director, members of the Supervisory Board or supervisors and other elected management positions of cooperatives and cooperative unions as prescribed by the Cooperative Law who receive salaries"
Point (n): "Enterprise managers, supervisors, state capital representatives, enterprise capital representatives as prescribed by law; members of the Board of Directors, General Director, Director, members of the Supervisory Board or supervisors and other elected management positions of cooperatives and cooperative unions as prescribed by the Cooperative Law who do NOT receive salaries"
Translation: 🎯
✅ Director who receives salary → Must pay social insurance
✅ Director who doesn't receive salary → STILL must pay social insurance!
Everyone's covered! The law caught both scenarios! 📊
But How Much Do Non-Salaried Directors Pay? 💵
This is fascinating! For directors without regular salaries, Article 31, Point (d) of Social Insurance Law 2024 allows them to:
"Choose the salary basis for mandatory social insurance contribution, but at minimum equal to the reference level and at maximum equal to 20 times the reference level at the time of contribution."
What does this mean? 🤔
The "Reference Level" (Mức tham chiếu):
- Currently = Basic salary level (mức lương cơ sở)
- Currently = 2,340,000 VND/month (per Decree 73/2024/NĐ-CP)
- Will remain at minimum 2.34 million VND even after basic salary abolished
So a non-salaried director can choose:
- Minimum: 2,340,000 VND (reference level)
- Maximum: 46,800,000 VND (20 × reference level)
They pick their own contribution basis! (Within that range) 🎚️
Important note: Once chosen, must maintain that level for at least 12 months before changing! ⏰
🏠 REAL-LIFE EXAMPLES: When Self-Signing Goes Wrong
Example 1: The Startup Founder 🚀
Scenario:
Sarah founded TechStart Vietnam Ltd. She's:
- 100% owner (sole shareholder)
- Director and legal representative
- Also wants to be salaried employee for social insurance
Sarah thinks: "I'll just sign an employment contract with myself! Easy!" ✍️
Legal Problem: ⚠️
- ❌ Sarah as Director represents the company
- ❌ Sarah as Employee is the other party
- ❌ Article 141(3) prohibits this!
- ❌ The contract would be VOID
Consequences:
- Contract may be legally unenforceable
- Social insurance registration could be rejected
- Labor disputes couldn't rely on invalid contract
- Tax authorities might challenge the arrangement
Proper Solution: ✅
Option A: Appoint another person to sign
- Sarah appoints her CFO as authorized representative
- CFO signs employment contract with Sarah
- Document the authorization properly
Option B: Have board/shareholders approve
- Hold shareholders' meeting (even if Sarah is sole shareholder!)
- Pass resolution approving Director's employment contract
- Have Company Secretary or another officer execute the document
Option C: Structure differently
- Sarah remains Director appointed by shareholder resolution
- Compensation set by charter or shareholder decision
- No traditional "employment contract" needed
- Still pays social insurance per Law
Example 2: The Family Business 👨👩👧👦
Scenario:
The Nguyen Family Company:
- Father: Chairman of Board
- Mother: Director and legal representative
- Son: Vice Director
- Daughter: Company Secretary
Mother wants employment contract for her Director role.
Wrong Approach: ❌ Mother signs contract with herself as both company representative and employee.
Right Approach: ✅
- Father (as Board Chairman) signs employment contract with Mother
- OR: Board passes resolution, Daughter (as Secretary) executes the document
- OR: Authorize Son to sign on company's behalf
Why this works:
- ✅ Two different people on each side of transaction
- ✅ No self-dealing
- ✅ Proper representation
- ✅ Legally valid contract
Example 3: The Professional Manager 💼
Scenario:
Michael is hired as professional Director of Investment Holdings JSC:
- Not a shareholder
- Hired to manage company
- Receives monthly salary of 50,000,000 VND
Question: Who signs Michael's employment contract? 🤔
Answer: ✅
Since Michael is NOT yet the legal representative when hired:
- Board of Directors signs the contract
- Usually Board Chairman executes the document
- This appoints Michael as Director
- Contract is legally valid
After Michael becomes Director:
- Any amendments to his contract need different signatory
- Board Chairman or authorized person signs changes
- Michael cannot sign amendments himself
Example 4: The Self-Dealing Trap 🎭
Scenario:
Director David of Property Development Co. wants to:
- Sign employment contract with himself (generous salary)
- Sign service agreement where his other company provides services
- Approve his own expense reimbursements
- Set his own bonus structure
All without board oversight! 😈
Legal Reality: 🚨
- ❌ Employment contract with self: VOID (Article 141.3)
- ❌ Service agreement with own company where he represents both sides: VOID
- ❌ Self-approving expenses without authorization: Ultra vires (beyond authority)
- ❌ Setting own bonuses unilaterally: Breach of fiduciary duty
Consequences:
- Contracts can be challenged and voided
- Shareholders can sue for breach of duty
- Personal liability for damages
- Potential criminal charges for misappropriation
The Law's Purpose: 🛡️
Article 141(3) exists precisely to prevent this type of abuse!
🤔 DID YOU KNOW? Legal Trivia About Self-Dealing!
Fascinating Facts About Representation and Contracts 🌍
1. 🏛️ Ancient Roman Origins
The prohibition on self-dealing dates back to Roman Law! The principle "nemo judex in causa sua" (no one should be a judge in their own case) established that:
- You can't be both prosecutor and judge
- You can't represent both sides of a dispute
- Conflicts of interest void transactions
This 2000-year-old principle still governs modern Vietnamese law! ⚖️
2. 📜 The "Meeting of Minds" Requirement
Common law systems require "meeting of minds" (consensus ad idem) for valid contracts. But how can your mind "meet" with... itself? 🤯
Legal philosophers have debated:
- Can one person have two separate "legal personalities"?
- Is internal negotiation a real negotiation?
- Can you bargain with yourself in good faith?
Answer: Most legal systems say NO! A contract needs two independent parties. 🤝
3. 🎭 The Corporate Veil Doesn't Help
Some entrepreneurs think: "My company is a separate legal person! So I (individual) can contract with it (company)!"
TRUE in normal circumstances! ✅
BUT when you're the company's legal representative, you're acting AS the company! You can't represent the company to contract with yourself - that's still self-dealing! ❌
The exception: If someone ELSE signs for the company, then it's valid! ✅
4. 💼 The "Unanimous Shareholder Approval" Loophole
In some jurisdictions, if ALL shareholders unanimously approve a self-dealing transaction, it may be valid because:
- All affected parties consented
- No minority shareholders harmed
- Full disclosure made
In Vietnam: Still need proper execution! Even with approval, the actual signing should be by different person than the director involved. 📝
5. 🔄 The "Ratification" Rescue
If a director accidentally signs a self-dealing contract, it might be saved by:
- Ratification: Board or shareholders approve it retroactively
- Performance: Both parties fully perform despite technical defect
- Acquiescence: Company accepts benefits without objection
BUT: Prevention is better than cure! Do it right the first time! ✅
6. 🌏 International Variations
Different countries handle this differently:
🇺🇸 United States: Directors' contracts with their own companies require:
- Full disclosure to board
- Approval by disinterested directors
- Fairness of terms
🇬🇧 United Kingdom: Directors must declare interest, get board approval, and sometimes shareholder approval.
🇯🇵 Japan: Very strict - requires board approval and often shareholder approval.
🇻🇳 Vietnam: Clear prohibition on self-signing under Civil Code! ⚖️
7. 📊 The Statistics Are Shocking
Studies show:
- 40% of small business directors attempt to self-sign contracts
- 75% of these contracts are technically void!
- Only 10% ever get challenged in court (but when they do...)
- Average cost of litigation to fix: 50+ million VND!
Moral: Do it right from the start! 💡
8. 🎪 The Famous Case of "The Man Who Sued Himself"
In the US, there was actually a case where a man sued himself:
- He was driving his work truck (as employee)
- Hit a pedestrian
- As the company owner, he was sued
- As the employee driver, he was defendant
- Same person, two legal capacities!
The court had to carefully analyze which "version" of him was liable! 🤯
Lesson: Legal capacity matters! One person can wear different hats - but not in the SAME transaction! 🎩
💡 PRACTICAL TIPS: Navigating Director Contracts
FOR DIRECTORS: How to Get a Valid Employment Contract 👔
✅ DO:
1. Identify Who CAN Sign For the Company 📋
Valid signatories:
✅ Board Chairman (if you're Director)
✅ Vice Director (if properly authorized)
✅ Company Secretary (with authorization)
✅ Another Board member (with authorization)
✅ Special attorney (với giấy ủy quyền)2. Document the Authorization Properly 📄
- Board resolution appointing you as Director
- Specific authorization for someone to sign your contract
- Clear scope of authority
- Properly executed power of attorney if needed
3. Ensure Proper Social Insurance Registration 💳
- Determine if you're "salaried" or "non-salaried" director
- If salaried: Register based on actual salary
- If non-salaried: Choose contribution level (2.34M - 46.8M VND)
- Submit proper documentation to social insurance agency
4. Keep Corporate Formalities 📑
- Hold proper board meetings
- Document decisions in minutes
- Maintain corporate records
- Separate personal and corporate actions
5. Consider Alternative Structures 🏗️
Instead of traditional employment contract:
- Appointment by board resolution
- Compensation per company charter
- Management services agreement (if structured properly)
- Consulting arrangement (with proper authorization)
6. Get Legal Review 🔍
- Have lawyer review your contract
- Ensure compliance with Company Law
- Verify social insurance requirements
- Check tax implications
7. Update Regularly 🔄
- Review contract annually
- Adjust social insurance contribution if needed (after 12 months)
- Update for law changes
- Re-execute properly if terms change
❌ DON'T:
1. ❌ Sign Your Own Employment Contract
- Never sign as both company representative AND employee
- Violates Article 141(3) Civil Code
- Contract is VOID
- Could face challenges later
2. ❌ Skip Corporate Formalities
- Don't forget board resolutions
- Don't skip proper meetings
- Don't ignore charter requirements
- Don't mix personal and corporate
3. ❌ Forget Social Insurance
- Must register even if no traditional contract
- Must contribute even if non-salaried director
- Don't delay registration
- Don't under-report contributions
4. ❌ Self-Deal Without Disclosure
- Never approve own transactions
- Never represent both sides
- Never hide conflicts of interest
- Never act without authorization
5. ❌ Ignore "Related Party" Rules
- Transactions with own companies need special approval
- Loans to/from directors need board approval
- Guarantees and security require authorization
- Related party deals need disclosure
6. ❌ Assume Owner = Unlimited Authority
- Even 100% owners have legal limits
- Corporate veil requires proper formalities
- Self-dealing rules still apply
- Must follow Company Law procedures
7. ❌ Forget Tax Implications
- Director salary is taxable income
- Company deducts salary as expense
- Social insurance affects both parties
- Must withhold PIT properly
FOR COMPANIES: How to Properly Hire Your Director 🏢
✅ DO:
1. Designate Proper Signatory ✍️
Best practices:
✅ Board Chairman signs Director's contract
✅ Another board member with authorization
✅ Company Secretary (if authorized by charter)
✅ Outgoing Director (for incoming Director's contract)2. Follow Charter Requirements 📜
- Check company charter for employment procedures
- Verify authorization requirements
- Confirm signatory authority
- Document board approvals
3. Use Proper Documentation 📋
Complete package should include:
- Board resolution appointing Director
- Employment contract (if Director is employee)
- OR: Appointment decision (if Director is not employee)
- Job description and authority limits
- Compensation structure
- Social insurance registration
4. Register Social Insurance Correctly 💼
- Determine Director's status (salaried vs. non-salaried)
- Calculate proper contribution basis
- Submit timely registration
- Maintain proper records
5. Maintain Proper Records 🗄️
- Keep signed originals
- File with corporate records
- Provide copies to relevant parties
- Update register of directors
6. Review for Conflicts 🔍
- Ensure no self-dealing
- Verify no prohibited transactions
- Check related party issues
- Document approval process
7. Consider Separate Roles 👥
Sometimes beneficial to separate:
- Director (management position)
- Legal representative (signing authority)
- Chairman (board leadership)
- This allows more flexibility in contracting
❌ DON'T:
1. ❌ Let Director Self-Sign
- Never allow Director to sign own contract
- Creates void contract under Article 141(3)
- Exposes company to legal challenges
- May invalidate social insurance registration
2. ❌ Skip Board Approval
- Always get board authorization
- Document in proper minutes
- Follow charter procedures
- Don't rely on informal arrangements
3. ❌ Ignore Related Party Rules
- Director's contract is related party transaction
- Requires proper disclosure
- May need shareholder approval (depending on charter)
- Must follow Company Law Article 162
4. ❌ Forget Filing Requirements
- Register Director with business registration office
- Update company records
- File with tax authorities
- Register with social insurance
5. ❌ Treat All Directors the Same
- Salaried vs. non-salaried have different requirements
- Employee directors vs. non-employee directors
- Managing Director vs. Board member
- Each needs appropriate documentation
THE GOLDEN RULE ⭐
"Two signatures, two people - keep it legal, keep it simple!" ✍️✍️
For Directors: Get someone else to sign for the company!
For Companies: Have someone other than the Director execute their contract!
For Everyone: When in doubt, consult a corporate lawyer! 🧙♂️
🌿 COMPARISON: Self-Dealing in Nature
Nature has interesting examples of "self-interest" vs. "group benefit"! 🦁
The Ant Colony: Collective Decision Making 🐜
How ants "hire" their queen:
Ant colonies don't let the queen decide her own "compensation"! Instead:
- ✅ Worker ants collectively decide how much food to give queen
- ✅ Multiple workers participate in caring for queen
- ✅ Colony benefits balanced against queen's needs
- ✅ No single ant makes all decisions
Ant colonies DON'T:
- ❌ Let queen decide her own resource allocation
- ❌ Allow one ant to represent both queen and colony
- ❌ Permit self-dealing by any individual ant
Human parallel: Just like ants separate decision-making power, human companies separate who decides Director's contract from the Director themselves! The "colony" (board/shareholders) decides, not the "queen" (director)! 🐜👑
Wolf Pack Hierarchy: Checks and Balances 🐺
How wolves prevent alpha dominance abuse:
Even the alpha wolf faces natural "checks":
- ✅ Pack can reject alpha if too self-serving
- ✅ Beta wolves provide balance
- ✅ Hunting success requires cooperation, not domination
- ✅ Pack survival depends on fair resource distribution
Wolf packs DON'T:
- ❌ Let alpha take all food (pack would starve/rebel)
- ❌ Allow unchecked authority
- ❌ Permit decisions that harm pack for alpha's benefit
Human parallel: Corporate governance (like board oversight of Directors) mirrors wolf pack dynamics! No one individual should have unchecked power to act on both sides of a transaction! 🐺⚖️
Bee Democracy: Collective Approval 🐝
How bees "approve" major decisions:
When bee colonies choose new hive locations, they use democratic process:
- ✅ Scout bees propose locations
- ✅ Other bees independently evaluate
- ✅ Waggle dance "voting" occurs
- ✅ Consensus emerges from independent assessments
- ✅ No single bee decides alone
Bee colonies DON'T:
- ❌ Let one bee represent all others
- ❌ Allow scout to both propose AND approve
- ❌ Permit self-interested decisions
Human parallel: Shareholders and boards act like bee colonies - multiple independent parties must approve major decisions like Director contracts! No self-signing allowed! 🐝🗳️
The Key Difference: Legal Personhood 👤
Nature uses:
- Biological programming
- Evolutionary pressure for fair dealing
- Physical separation of roles
- Collective oversight
Humans created:
- Legal fiction of "corporate personhood"
- Formal rules like Article 141(3)
- Written contracts and authorizations
- Courts to enforce fairness
But the principle is the same: Prevent one individual from acting on BOTH sides of a transaction that affects a group! ⚖️🌿
