Contracting with a Branch Lacking Legal Personality: Validity? — A company signed a supply contract with a branch; the signer was the branch director and the seal was the branch seal. When the branch pays late, the parent company denies liability, arguing the branch has no legal personality so the contract does not bind the company. The counterparty needs to know whether the contract is valid and whom to claim from.
What the law says about this situation
Article 84 of the Civil Code 91/2015/QH13 provides that a branch is a dependent unit of a legal entity, is not itself a legal entity, and the legal entity holds the civil rights and obligations arising from transactions established and performed by the branch within the tasks assigned to it. The Law on Enterprises 59/2020/QH14 (Articles 44 and 45 on branches) lets an enterprise establish branches and assign tasks, with the branch head representing the enterprise by authorisation within the assigned scope. Validity therefore turns not on the branch’s personality but on the scope of tasks and authority the company assigned, registered and published.
What makes this situation distinct
This article clears up a common misconception: lacking legal personality does not mean a branch cannot contract. The focus is why the parent entity stands behind every in-scope branch transaction, when an out-of-scope transaction creates a genuine dispute, and how to verify a branch’s authority before signing.
Core questions answered
Is a contract signed with a branch valid?
It is valid and binds the very legal entity that established the branch, if the transaction falls within the tasks assigned to the branch. Article 84 of the Civil Code 91/2015/QH13 confirms the legal entity bears the rights and obligations from transactions its branch establishes and performs. A parent cannot let its branch do business and sign within its assigned field, then disown payment duties when the branch pays late, unless it proves the transaction was entirely outside the assigned scope and the counterparty knew that when signing.
Does a branch director need separate authorisation to sign?
The branch head signs within the assigned tasks under the enterprise’s document on the branch’s functions and tasks and the branch operation registration. For high-value transactions or those outside the branch’s routine activity, a prudent counterparty should ask for an authorisation letter or approval from the parent company’s legal representative. Skipping this check does not automatically void the contract, but it opens room for authority disputes when a conflict arises.
Must the parent company pay the branch’s debts?
Yes, because a branch’s assets and obligations belong to the legal entity itself: dependent or independent accounting is only an accounting and tax regime, not a separate asset owner. When suing for the debt, the seller sues the parent company as defendant, and enforcement reaches assets of the whole legal entity, not just assets located at the branch. This is the point counterparties often get wrong when told that contracting with a branch means unrecoverable money.
Where is the real risk in contracting with a branch?
Three practical risks: a transaction exceeding the business lines or tasks assigned to the branch, such as a sales branch signing a loan contract; the branch seal and information being used by a former branch head the enterprise failed to retrieve and update; and the branch being closed mid-contract, disrupting contact and acceptance. All three are preventable by checking the branch operation registration and the task-assignment document before signing.
Next steps for the business
Practical steps: before signing, look up the branch operation registration and its assigned business lines and tasks; for large contracts, request the parent company’s authorisation letter or transaction confirmation; name the full legal entity in the contract with the branch as the performing unit so the defendant is identified immediately in a dispute; when claiming, send the demand to both the branch and the head office; and if suing, sue the parent entity rather than naming only the branch.
This article has been quality-reviewed by the FLAW AI Legal Council