Vietnam has a complex and well-regulated corporate governance system designed to ensure financial transparency and prevent conflicts of interest. Businesses operating in the country must comply with various legal provisions to maintain accountability and minimize financial risks.
One frequently debated question is whether a Legal Representative (LR) can also serve as a Chief Accountant (CA) within the same company. Since the LR holds executive power, including signing contracts and making strategic financial decisions, while the CA is responsible for ensuring accurate financial reporting and tax compliance, combining these roles could create potential conflicts of interest.
To prevent financial mismanagement and ensure independent oversight of corporate finances, Vietnamese law imposes strict regulations on who can hold these positions concurrently. This article provides a thorough analysis of the legal framework surrounding these roles, potential risks, exceptions, and the best practices for compliance.
Understanding the Role of a Legal Representative in Vietnam
Definition and Legal Standing
A LR is an individual who is legally authorized to represent a company in all business, contractual, and legal matters. The LR can under the title of Director, General Manager, or another individual designated under the company charter.
Key Responsibilities of a Legal Representative
The LR holds a crucial role in business operations and decision-making. Their key responsibilities include:
- Strategic Corporate Decision-Making – Overseeing business strategies, approving major transactions, and managing corporate activities.
- Legal and Financial Liabilities – Ensuring that the company adheres to corporate regulations and financial obligations.
- Representation in Legal and Regulatory Matters – Acting as the company’s official signatory for contracts, disputes, and government interactions.
- Financial Oversight and Risk Management – Approving budgets and financial plans while ensuring operational efficiency.
Since the LR already has a high level of control over financial matters, allowing them to hold the CA position might raise concerns about financial transparency.
The Chief Accountant Position in Vietnam
Definition and Importance
The CA is the head of the accounting system within an organization, responsible for organizing and overseeing accounting activities in accordance with legal regulations. They are also responsible for, but not limited to, the following duties:
- Implementing legal provisions on accounting and finance within the organization.
- Organizing and managing the accounting system in compliance with the Law on Accounting.
- Preparing financial reports in accordance with accounting regulations and standards.
This role requires independence and technical expertise, which is why strict qualifications are imposed on individuals who wish to assume this position.
Key Responsibilities of a Chief Accountant
A CA’s primary duties include:
- Financial Supervision – Monitoring financial records, ensuring compliance with national accounting standards.
- Tax Declaration & Compliance – Managing tax reports and working with authorities to ensure tax obligations are met.
- Audit & Financial Statements Preparation – Assisting in external audits, preparing financial statements for regulatory bodies.
- Internal Control & Fraud Prevention – Establishing mechanisms to detect financial irregularities and ensure accuracy in accounting.
Since the CA is meant to act as an independent financial oversight authority, it is evident why combining LR and CA roles can undermine corporate accountability.
The Legal Conflict: Can a Legal Representative Simultaneously Be a Chief Accountant?
Vietnamese law generally prohibits individuals in managerial positions from also holding key accounting roles. The primary reason is to prevent conflicts of interest, which arise when one person has the authority to both approve financial transactions and oversee their own reporting.
For example, if an LR authorizes a financial expenditure and is also responsible for verifying the same transaction as a CA, it compromises internal control mechanisms. This lack of oversight could lead to:
- Fraudulent financial reporting.
- Manipulation of accounting records.
- Tax evasion or financial misstatements.
To safeguard financial integrity, Vietnamese law separates executive decision-making from financial oversight.
Legal Provisions Governing the Separation of Roles
1. The Law on Accounting
This law explicitly prohibits business managers (including LRs) from concurrently holding accounting positions to prevent financial conflicts.
2. Accounting Regulations
The related decree further enforces the requirement for independent financial oversight, while also outlining specific exceptions for small businesses.
3. The Law on Enterprise
Vietnam’s Law on Enterprise defines the LR as a business manager, making it clear that they cannot simultaneously oversee financial reporting.
Who Is Considered a Business Manager Under Vietnamese Law?
Vietnamese law defines business managers as:
- Owner of a Private Enterprise
- Partnership Member
- Chairman of the Members’ Council
- Member of the Members’ Council
- Company President
- Chairman of the Board of Directors
- Member of the Board of Directors
- Director or General Director
- Individuals Holding Other Managerial Positions
Since the LR is explicitly classified as a business manager, they are subject to strict restrictions that prevent them from assuming accounting functions.
Exceptions Where an LR Can also Hold a CA Position
Despite the general prohibition, some exceptions exist.
- In a Private Enterprise
- In case an LLC owned by an individual, he/she can legally hold both positions.
- Other cases specified by the government
3 Potential Risks and Consequences of Combining Both Roles
1. Legal Risks
Non-compliance with Vietnamese corporate laws can lead to regulatory fines and penalties.
2. Financial Transparency Concerns
Merging the LR and CA roles can increase the risk of fraud, financial misstatements, and accounting irregularities.
3. Compliance and Corporate Governance Issues
Companies that fail to separate roles may lose investor confidence and face increased regulatory scrutiny.
Regulatory Penalties for Non-Compliance
Businesses violating these laws may face:
- Monetary fines.
- Suspension of business operations.
- Increased government oversight.
- Legal consequences for executives.
The Importance of Role Separation in Corporate Governance
Having separate individuals for these roles ensures:
- Greater financial integrity.
- Stronger corporate oversight.
- Higher investor trust.
- Reduced risk of financial mismanagement.
Alternative Solutions for Companies That Lack a Qualified CA
If a company cannot appoint a separate CA, it may:
- Hire an external accounting firm.
- Outsource financial management.
- Appoint a non-managerial employee as CA.
Practical Considerations for Foreign Investors and SMEs
Foreign investors and SMEs should:
- Structure their corporate hierarchy carefully.
- Avoid appointing an LR as CA unless legally exempt.
- Follow corporate best practices.
Conclusion
While there are specific exemptions, the general rule in Vietnam is that a Legal Representative cannot concurrently serve as a Chief Accountant. Companies must adhere to corporate governance principles, ensure compliance with Vietnamese law, and adopt best practices to maintain financial transparency.
