LEGAL RISKS OF USING A NOMINEE FOR BUSINESS REGISTRATION

Nominee for business registration is no longer uncommon in business practice, especially for foreign investors or individuals who do not yet satisfy legal requirements. They often choose to hire another person to act as a nominee on enterprise registration documents through nominee agreements/contract so that the company can quickly commence operations in the market. However, this practice is unlawful, carries potential legal risks, and is also a common cause of disputes arising later. The following article analyzes the legal risks associated

Nominee under Vietnamese law

Vietnamese law currently does not provide a formal definition of nominee on an enterprise registration certificate. However, it may generally be understood as a situation in which a person who is not the actual owner of the business is recorded as the legal representative or as a member/shareholder on the Enterprise Registration Certificate. The nominee’s name appears on official legal documents, while the person who actually contributes capital, owns, and operates the business does not appear on these documents.

Pursuant to Article 12 of the Law on Enterprises 2020 (as amended and supplemented), the legal representative of an enterprise is an individual representing the enterprise in exercising rights and performing obligations arising from the enterprise’s transactions; representing the enterprise as petitioner, plaintiff, defendant, or person with related rights and obligations before Arbitration or Courts; and performing other rights and obligations prescribed by law.

The legal representative is commonly:

• • • • Private Enterprise: the owner of the enterprise;
      • Partnership Company: a general partner;
      • Joint Stock Company or Limited Liability Company: one or more legal representatives, including:
        • • • • Director/General Director: appointed either under an employment contract or from among contributing members/shareholders;
              • Chairman of the Members’ Council/Board of Directors;
              • Other positions as stipulated in the company charter.

The nominee arrangement is often associated with the capital contribution made by the actual owner. Nevertheless, the nominee may still bear responsibility for financial obligations and debts of the company within the scope of the contributed capital, as well as other legal risks. In the case of Private Enterprises and Partnerships, the nominee must bear liability with all of personal assets for debts and other property obligations arising during the company’s operation. As a result, the nominee risks losing all personal assets if the business incurs losses.

Responsibilities of the owner and legal representative

Pursuant to Article 13 of the Law on Enterprises 2020 (as amended and supplemented), the legal representative has the following rights and obligations:

• • • • To exercise assigned rights and obligations honestly, prudently, and in the best interests of the enterprise;
      • To remain loyal to the enterprise’s interests; not to abuse position or authority or use information, business secrets, opportunities, or other assets of the enterprise for personal gain or for the benefit of other organizations or individuals;
      • To promptly, fully, and accurately notify the enterprise of any enterprises in which he/she or related persons own shares or contributed capital as prescribed by law;
      • The legal representative shall bear personal liability for damage caused to the enterprise due to violations of the above obligations.

Depending on the nature of the violation, the legal representative may bear different forms of liability:

• • • • Administrative liability: Pursuant to Article 4 of Decree No. 168/2025/ND-CP, “The enterprise founder or the enterprise itself shall declare registration information and take responsibility before the law for the legality, truthfulness, and accuracy of information declared in the enterprise registration dossier.” Therefore, dishonest or fraudulent acts as mentioned above may result in administrative fines ranging from VND 20 – 30 million or revocation of the Enterprise Registration Certificate under Article 43 of Decree No. 122/2021/ND-CP.
      • Civil liability: The legal representative may bear liability for compensation for damages caused to the company and third parties due to his/her wrongful acts.
      • Criminal liability:
        • • • If the enterprise commits criminal acts and the nominee knows, participates in, or assists in such acts, he/she may be prosecuted as an accomplice for the relevant crimes under the Criminal Code.
            • If the actual operator is the person directing and managing the enterprise’s criminal activities, he/she may be prosecuted as the organizer of the crime in accordance with criminal law provisions. Common offenses include tax evasion, illegal invoice trading, fraud, money laundering, etc.

Legal risks

For the nominee

The nominee is the person legally recognized in the enterprise registration documents, even though he/she is not the actual owner. Therefore, the nominee must directly bear responsibility for the enterprise’s business activities and legal compliance.

• • • • The nominee may bear legal responsibility when the enterprise violates tax obligations, financial obligations, or engages in unlawful activities. In cases involving tax evasion, illegal invoice use, fraud, money laundering, or illegal business operations, the nominee may face administrative penalties or criminal prosecution as the enterprise’s manager.
      • There is a risk that personal information or signatures may be misused to carry out transactions or activities that the nominee was neither authorized nor aware of.
      • The nominee may be liable for compensation relating to transactions or contracts signed on behalf of others if such transactions lead to losses, disputes, or obligations beyond the agreed authority.

For the actual operator

The actual operator is the person who contributes capital and truly manages the enterprise but is not legally recognized in the enterprise registration documents. Consequently, all ownership and management rights legally belong to the nominee whose name appears on official documents. Risks include:

• • • • Risk of losing control over the enterprise: The nominee possesses legal rights similar to an actual owner, such as making company decisions, transferring capital contributions, or changing enterprise registration information. The actual owner may have difficulty preventing such actions and risks losing the entire business if the nominee acts in bad faith.
      • Loss of ownership rights: Since the actual investor/operator is not named on the Enterprise Registration Certificate, the law does not recognize him/her as the lawful owner. In the event of disputes, courts will generally prioritize protecting the rights of the person whose name appears on official documents.
      • Nominee agreements may be declared invalid: In disputes, courts may invalidate nominee agreements on the grounds that they violate prohibitions of law or are contrary to social ethics.

In conclusion, using a nominee for business registration is a practice that carries significant legal consequences and directly affects the rights and interests of the parties involved when disputes arise. Therefore, the establishment and management of enterprises should be conducted transparently, honestly, and in full compliance with applicable laws.

For professional consultation and legal support, please contact BKCLAW through the following information:

Phone: 0909 073 692

Email: info@bkclaw.vn

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