Organizational structure of joint stock companies
Organizational structure of joint stock companies
Joint stock company is the business entity that is expected to bring the strongest development ability among all types of businesses. Due to the itself open nature, the organizational structure is more complicated. In the following article, the authors introduce the basic and important legal regulations on the organizational structure and management of a joint stock company in accordance with the regulations of Law on enterprises No. 59/2020/QH14 (“Enterprises Law” or “Enterprises Law 2020”). Other contents on legal management of joint stock companies and legal management of public companies will be mentioned in other articles. Please note that the content of the article represents the personal views of the authors, is for reference only and should not be considered as the official legal advice of BFSC Law Firm.
Contents:
(i) Organizational structure of joint stock companies
(ii) General Meeting of Shareholders
(iii) The Board of Directors
(iv) Chairperson of the Board of Directors
(v) Company secretary
(vi) Chief Executive Officer
(vii) Supervisory Board
(viii) The Audit Committee
Organizational structure of joint stock companies
Unless otherwise specified by the securities law, joint stock companies are entitled to choose to be organized and operate after either of the following models:
a) General Meeting of Shareholders, Board of Directors, Supervisory Board and Chief Executive Officer. In case a joint stock company has less than 11 shareholders and the institutional shareholders own less than 50% of total shares of the company, a Supervisory Board is not compulsory;
b) General Meeting of Shareholders, Board of Directors and Chief Executive Officer. In this case, at least 20% of the members of the Board of Directors must be independent members and an Audit Committee shall be required in the Board of Directors. The organizational structure, functions and tasks of the Audit Committee shall be specified in the company charter or operation regulation of the Audit Committee issued by the Board of Directors.
General Meeting of Shareholders
The General Meeting of Shareholders includes all shareholders with voting rights and is the highest decision-making body of a joint stock company.
The General Meeting of Shareholders has the following rights and obligations:
a) To pass development orientations of the company;
b) To decide on types of shares and total number of shares of each type which may be offered; to decide on the rate of annual dividends for each type of shares;
c) To elect, relieve from duty or remove from office members of the Board of Directors and supervisors;
d) To make investment decisions or decisions on sale of assets valued at 35% or more of the total value of assets recorded in the latest financial statement of the company, unless another percentage or value is specified in the company charter;
đ) To decide on amendments and supplementations to the company charter;
e) To approve annual financial statements;
g) To decide on redemption of more than 10% of the total number of shares of each type already sold;
h) To consider and handle violations committed by members of the Board of Directors and supervisors which cause damage to the company and its shareholders;
i) To decide on reorganization and dissolution of the company;
k) To decide on the budget for or total level of remuneration, bonuses and other benefits for the Board of Directors and Supervisory Board;
l) To approve the internal governance regulation; and operation regulations of the Board of Directors and Supervisory Board;
m) To approve the list of independent audit firms, to decide which independent audit firms will conduct inspection of operation of the company; to remove from office independent auditors when necessary;
n) Other rights and obligations specified in this Law and the company charter.
The Board of Directors
The Board of Directors is the body managing the company and has full competence to make decisions in the name of the company and to exercise the rights and perform the obligations of the company, except those falling within the competence of the General Meeting of Shareholders.
The Board of Directors has the following rights and obligations:
a) To decide on medium-term development strategies and plans and annual business plans of the company;
b) To recommend types of shares and total number of shares of each type which may be offered;
c) To decide to sell unsold shares within the number of shares of each type which may be offered; to decide on raising additional funds in other forms;
d) To decide on selling prices of shares and bonds of the company;
đ) To decide on redemption of shares in accordance with Clauses 1 and 2, Article 133 of this Law;
e) To decide on investment plans and investment projects within the competence and limits prescribed by law;
g) To decide on solutions for market expansion, marketing and technology;
h) To approve contracts for purchase, sale, borrowing and lending and other contracts and transactions valued at 35% or more of the total value of assets recorded in the latest financial statement of the company, unless another percentage or value is specified in the company charter, and contracts and transactions falling within the deciding competence of the General Meeting of Shareholders specified at Point d, Clause 2, Article 138; and Clauses 1 and 3, Article 167, of this Law;
i) To appoint, relieve from duty or remove from office the chairperson of the Board of Directors; to appoint, relief from duty and sign contracts or terminate contracts with the Chief Executive Officer and other key managers of the company as specified in the company charter; to decide on wages, remuneration, bonuses and other benefits of such managers; to appoint an authorized representative to participate in the Members’ Council or the General Meeting of Shareholders in another company, and decide on the level of remuneration and other benefits of such persons;
k) To supervise and direct the Chief Executive Officer and other managers in conducting the day-to-day business operations of the company;
l) To decide on the organizational structure and internal management regulation of the company; to decide on the establishment of subsidiaries, branches and representative offices and the contribution of capital to or purchase of shares from other enterprises;
m) To approve the agenda and contents of documents for the General Meeting of Shareholders; to convene the General Meeting of Shareholders or to solicit written opinions for the General Meeting of Shareholders to adopt resolutions;
n) To submit annual financial statements to the General Meeting of Shareholders;
o) To recommend dividend rates to be paid; to decide on the time limit and procedures for payment of dividends or for dealing with losses incurred in the business operations;
p) To recommend reorganization or dissolution of the company; to request bankruptcy of the company;
q) Other rights and obligations specified in this Law and the company charter.
Chairperson of the Board of Directors
The chairperson of the Board of Directors shall be elected among members of the Board of Directors, and relieved from duty or removed from office by the Board of Directors.
The chairperson of the Board of Directors has the following rights and obligations:
a) To prepare working plans and programs of the Board of Directors;
b) To prepare agendas, contents and documents for meetings of the Board of Directors; to convene and chair meetings of the Board of Directors;
c) To organize the approval of resolutions and decisions of the Board of Directors;
d) To monitor the implementation of resolutions and decisions of the Board of Directors;
đ) To chair meetings of the General Meeting of Shareholders;
e) Other rights and obligations specified in this Law and the company charter.
Company secretary
If finding it necessary, the Board of Directors shall appoint a company secretary. The company secretary has the following rights and obligations:
a) To assist in the convening of meetings of the General Meeting of Shareholders and meetings of the Board of Directors; to record the meeting minutes;
b) To assist members of the Board of Directors in exercising their rights and performing their obligations;
c) To assist the Board of Directors in applying and implementing the company governance principles;
d) To assist the company in developing shareholder relations and protecting the lawful rights and interests of shareholders; and in fulfilling the obligations to provide information and disclose information and administrative procedures;
đ) Other rights and obligations specified in the company charter.
Chief Executive Officer
The Board of Directors shall appoint one of its members or hire another person to act as Chief Executive Officer.
The Chief Executive Officer has the following rights and obligations:
a) To decide on issues relating to day-to-day business operations of the company that fall beyond the competence of the Board of Directors;
b) To organize the implementation of resolutions and decisions of the Board of Directors;
c) To organize the implementation of business plans and investment plans of the company;
d) To propose the organizational structure and internal management regulations of the company;
đ) To appoint, relieve from duty and remove from office holders of managerial posts in the company, except those falling within the competence of the Board of Directors;
e) To decide on wages and other benefits for employees of the company, including also managers appointed by himself/herself;
g) To recruit employees;
h) To propose methods of paying dividends and dealing with loss in business;
i) Other rights and obligations specified by law, the company charter, and resolutions and decisions of the Board of Directors.
Supervisory Board
The Supervisory Board has between 3 and 5 supervisors; the term of office of supervisors must not exceed 5 years and supervisors may be re-elected with an unlimited number of terms of office.
Rights and obligations of the Supervisory Board
1. To supervise the Board of Directors and Chief Executive Officer in management and administration of the company.
2. To inspect the reasonableness, legality, truthfulness and prudence in management and administration of business operations; the systematicity, consistency and appropriateness of accounting and statistical works and preparation of financial statements.
3. To appraise the adequacy, legality and truthfulness of the company’s business reports and annual and biannual financial statements, and reports evaluating management work of the Board of Directors; and to submit appraisal reports at the annual General Meeting of Shareholders. To review contracts and transactions with related parties falling within the approval competence of the Board of Directors or the General Meeting of Shareholder, and make recommendations on contracts and transactions to be approved by the Board of Directors or the General Meeting of Shareholder.
4. To review, inspect and evaluate the effect and efficiency of internal control, internal audit, risk management and early warning systems of the company.
5. To review account books, accounting entries and other documents of the company, and examine management and administration activities of the company when finding it necessary or pursuant to a resolution of the General Meeting of Shareholders or as requested by a shareholder or a group of shareholders as specified in Clause 2, Article 115 of this Law.
6. At the request of a shareholder or a group of shareholders as specified in Clause 2, Article 115 of this Law, the Supervisory Board shall carry out an inspection within 7 working days after receiving the request. Within 15 days after completing the inspection, the Supervisory Board shall submit a report explaining matters requested for inspection to the Board of Directors and the requesting shareholder or group of shareholders. The Supervisory Board’s inspection specified in this Clause must neither disrupt the normal operation of the Board of Directors nor interrupt the administration of the company’s business operations.
7. To propose the Board of Directors or the General Meeting of Shareholders measures to modify, supplement and improve the organizational structure for the management, supervision and administration of the company’s business operations.
8. When detecting that a member of the Board of Directors or the Chief Executive Officer violates the provisions of Article 165 of this Law, to immediately send a written report to the Board of Directors and request the violator to stop the violation and take remedial measures.
9. To participate in and discuss at meetings of the General Meeting of Shareholders amd the Board of Directors and other meetings of the company.
10. To use independent consultants and the internal audit unit of the company to fulfill its assigned tasks.
11. To consult the Board of Directors before submitting reports, conclusions and recommendations to the General Meeting of Shareholders.
12. To exercise other rights and perform other obligations as specified in this Law, the company charter and resolutions of the General Meeting of Shareholders.
The Audit Committee
The Audit Committee is a specialized agency of the Board of Directors. It has 2 or more members. The chairperson of the Audit Committee must be an independent member of the Board of Directors. Other members of the Audit Committee must be non-executive members of the Board of Directors.
The Audit Committee has the following rights and obligations:
a) To supervise the truthfulness of the company’ s financial statements and official announcements related to the company’s financial results;
b) To review internal control and risk management systems;
c) To review transactions with related parties falling within the approval competence of the Board of Directors or the General Meeting of Shareholders and make recommendations on transactions to be approved by the Board of Directors or the General Meeting of Shareholders;
d) To supervise the company’s internal audit unit;
đ) To recommend an independent audit, the level of remuneration for, and relevant terms in the contract with, such audit firm for adoption by the Board of Directors before submitting the recommendation to the annual General Meeting of Shareholders for approval;
e) To monitor and evaluate the independence and objectivity of the audit firm and effectiveness of the audit process, especially in case the company also uses non-audit services of the audit firm;
g) To carry out supervision to ensure the company’s compliance with law, requirements of management agencies, and other internal regulations.
Authors: Lawyer Phan Quang Chung | Legal Assistant PhamThi Kieu Anh