A single large contract can lock a joint venture into multi-year commitments — a long factory lease, exclusive materials purchasing, outsourcing an entire operating function. Because contracts are formally daily executive acts, they are the classic detour around consent lists for borrowing and assets, unless the charter carries a tightly designed contract-approval threshold.
Legal basis
Signing authority in a company runs through a chain: the legal representative (Articles 12, 13 of the Enterprise Law 2020) and authorized persons, within the charter and delegation decisions. When a signatory exceeds internal authority, consequences toward third parties are handled by Articles 142 and 143 of the Civil Code 2015 on transactions established by a person without representative authority: the transaction is not automatically void in all cases — a good-faith counterparty and facts such as partial performance or benefit received by the company can still bind the company. This is the critical gap versus many shareholders’ expectations: a charter authority limit is an internal shield, but its strength against third parties depends on whether the limit was public and whether the counterparty knew or should have known of it.
Analysis: questions investors actually ask
Above what contract value must both sides approve?
The threshold is set by the charter on a tiered scale: contracts within the approved budget and below the executive limit belong to the general director; contracts above a defined value (absolute and/or a ratio of revenue or assets) belong to the Members’ Council/Board; contracts of a structural nature (unusually long terms, exclusivity, related parties, outside the core business) belong on the shareholder consent list. Value is measured across the contract’s entire term including renewal years — not by its first-year value — to prevent circumvention by ‘one-year contracts renewed many times’ that are substantively long-term commitments.
Is a large contract signed alone by the general director valid?
Very possibly yes toward the third party, and the minority must understand this clearly: if the counterparty neither knew nor was required to know of the authority limit in the charter or internal rules, the company may remain bound under the Civil Code’s rules protecting transactions with apparent representatives. The practical protection therefore sits outside the documents: notify major counterparties and the bank of the approval thresholds, operate bank co-signature above the threshold, and disclose the authority matrix in dealings with strategic suppliers. The general director’s internal liability for over-signing is compensation to the company — recovery after the damage.
What about splitting contracts to dodge the threshold?
This is the most common circumvention technique and must be closed by definition: the charter/SHA should aggregate contracts with the same counterparty (or related group), for the same purpose, within a defined window (for example 12 months), when testing the threshold; splitting to evade approval is a charter breach and grounds for removing the executive. Pair it with a periodic contract-register report so shareholders can see the aggregated picture — without aggregated reporting, the aggregation clause is words on paper because nobody detects the splitting.
Practical recommendations
Our advice: build contract thresholds on three axes (aggregate whole-term value — contract nature — related or independent counterparty) and turn the threshold into a physical mechanism at the bank: payment orders above the threshold execute only with the registered signature matrix complete. An approval threshold the payment system does not know about will always be crossed in busy practice — and by the time a dispute arrives, the company is usually already bound to the third party.
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FLAT Law Firm advises foreign investors on company formation, capital structure, land and joint-venture governance in Vietnam. Contact us for advice on your specific case.
For general reference only; not a substitute for legal advice on your specific case.
This article has been quality-reviewed by the FLAW AI Legal Council