CORPORATE GOVERNANCE STRUCTURE OF NON-PUBLIC JOINT STOCK COMPANIES IN VIETNAM
In practice, many non-public joint stock companies in Vietnam, particularly those established with no intention of expanding their shareholder base, often fail to clearly distinguish the powers and responsibilities of the company’s governing bodies and management. Such ambiguity frequently results in overlapping authority and governance inefficiencies.
A common example is a joint stock company established with the statutory minimum of three shareholders, where one shareholder holds virtually all of the charter capital while simultaneously serving as the Chairman of the Board of Directors, the General Director (or Director), and the legal representative of the company. In these circumstances, the controlling shareholder often assumes responsibility for virtually all corporate matters, resolving legal and financial issues using corporate assets and, where necessary, personal assets or personal relationships. The remaining shareholders generally bear little practical responsibility throughout the company’s lifecycle, apart from participating in corporate meetings and completing routine corporate formalities.
For companies with a broader shareholder base or those intending to attract additional investors, a clear allocation of authority among corporate bodies and managers is an essential element of sound corporate governance. Establishing an appropriate governance framework not only enhances internal management but also prepares the company for future capital raising or transition into a public company.
This article provides an overview of the governance structure of non-public joint stock companies under the Law on Enterprises No. 59/2020/QH14, as amended by Law No. 03/2022/QH15 and Law No. 76/2025/QH15 (collectively referred to in this article as “the 2020 Law on Enterprises”).
Under Article 137.1 of the 2020 Law on Enterprises, a joint stock company may adopt one of the following governance models:
Model 1
- General Meeting of Shareholders;
- Board of Directors;
- Board of Supervisors; and
- Director or General Director.
Model 2
- General Meeting of Shareholders;
- Board of Directors; and
- Director or General Director.
Under Model 1, the establishment of a Board of Supervisors is not mandatory where the company has fewer than eleven shareholders and institutional shareholders collectively hold less than 50% of the total voting shares.
Under Model 2, at least 20% of the members of the Board of Directors must be independent directors, and an Audit Committee must be established under the Board of Directors.
In practice, most non-public joint stock companies adopt Model 1. Furthermore, the majority fall within the category of companies that are not legally required to establish a Board of Supervisors.
Apart from the Audit Committee under Model 2, the governance structure of a joint stock company may also include members of the Board of Directors, the Chairman of the Board, Controllers, auditors, the company secretary, the person responsible for corporate governance, the information disclosure officer, specialised committees under the Board of Directors, the company’s legal representative, and representatives appointed by institutional shareholders. These positions, however, are beyond the scope of this article.
Accordingly, the following discussion focuses on the three principal governance bodies most commonly found in non-public joint stock companies:
- the General Meeting of Shareholders;
- the Board of Directors; and
- the Director or General Director
(1) General Meeting of Shareholders
Under the 2020 Law on Enterprises, the General Meeting of Shareholders (“GMS”) comprises all shareholders holding voting shares and serves as the highest decision-making body of a joint stock company. While the Law prescribes the statutory powers and responsibilities of the GMS, it also allows a company’s charter to supplement certain governance arrangements relating to the GMS and its meetings.
When exercising this flexibility, companies should ensure that their charter remains consistent with the Law on Enterprises and other applicable legislation, including securities regulations where relevant. In practice, the charter should avoid introducing unnecessary procedural requirements or compliance costs and should not unduly transfer matters that properly fall within the authority of the GMS to other corporate bodies. A review of the Model Charter applicable to public companies and the published charters of numerous Vietnamese companies indicates that most companies largely adopt the statutory allocation of powers, with only limited adjustments to thresholds, voting ratios or monetary values to reflect their particular governance needs.
As the company’s supreme governing body, resolutions adopted by the GMS with the unanimous approval of all voting shares are generallyregarded as valid and effective, even where procedural defects exist in the convening or conduct of the meeting. Nevertheless, in the author’s view, and in the absence of any statutory exception under the 2020 Law on Enterprises, a resolution containing provisions contrary to mandatory law may still be declared invalid or set aside upon the request of an eligible shareholder.
The GMS must convene an annual meeting within six months following the end of the financial year, including any extension granted by the Board of Directors in accordance with law. Extraordinary meetings may also be convened whenever matters falling within the authority of the GMS require consideration and approval.
The Law also recognises flexible meeting formats. Meetings may be held in person or through a combination of physical and electronic participation. Except for matters that must be considered at an annual GMS or those required by law to be approved at a duly convened meeting, shareholders may adopt resolutions by written voting without convening a physical meeting.
Companies should also be aware that failure to convene annual or extraordinary GMS meetings when required may expose members of the Board of Directors or the Board of Supervisors (where applicable) to legal liability. Likewise, resolutions adopted in breach of statutory requirements or the company’s charter may be challenged and invalidated, potentially resulting in civil liability for the company’s managers.
2. Board of Directors
Under the 2020 Law on Enterprises, the Board of Directors (“BOD”) is the company’s management body and is vested with authority to exercise the rights and perform the obligations of the company on its behalf, except for matters reserved to the General Meeting of Shareholders.
The BOD functions as a collective decision-making body rather than through the authority of any individual member. Accordingly, it is required to hold quarterly meetings and may convene extraordinary meetings whenever necessary to consider matters within its competence.
Although the GMS may authorise the BOD to perform certain functions that would otherwise fall within the shareholders’ authority, such delegation should not, in the author’s view, constitute a standing or permanent transfer of powers unless expressly permitted by law. Corporate bond issuances provide one example where legislation expressly allows such delegation. As a general principle, however, the GMS should determine the overall policy or transaction and may authorise the BOD to implement the remaining matters on a case-by-case basis. Such authorisation should be interpreted as limited to the specific matter approved and should not be relied upon as continuing authority for future transactions of a similar nature.
Members of the BOD are elected, dismissed and removed by the GMS. The Chairman of the BOD, however, is elected by and from among the members of the Board.
An important governance principle is that responsibility for matters falling within the authority of the BOD is collective. A member cannot avoid liability by arguing that responsibility rests solely with the Chairman or another member unless that member has taken all reasonable steps to ensure that the Board acted within its lawful authority or has formally objected to decisions or conduct exceeding the Board’s powers. One notable example is the statutory joint liability imposed on BOD members where the Board fails to convene a GMS as required by law. Although the Chairman is responsible for convening shareholder meetings, the law nevertheless imposes collective responsibility on all Board members for such failure.
Companies and shareholders should also pay close attention to the statutory eligibility requirements applicable to members of the BOD, including independent directors where relevant. Unless the company’s charter expressly requires Board members to be shareholders, individuals who are not shareholders may still be nominated and elected provided that they satisfy the statutory qualification requirements. Appointing experienced and qualified directors can substantially enhance corporate governance and long-term business performance. Conversely, appointing shareholders who do not satisfy the minimum legal qualifications merely because of their ownership status is unlikely to benefit either the company or its shareholders. Furthermore, appointing individuals who are legally prohibited from managing enterprises may expose the company to administrative sanctions.
3. Director / General Director
Under the 2020 Law on Enterprises, the Director or General Director is responsible for the day-to-day management of the company’s business operations. The Director or General Director operates under the supervision of the Board of Directors and is accountable to both the Board and the law for the proper exercise of the powers and duties entrusted to him or her.
The Director or General Director is appointed or employed by the Board of Directors and may also serve as the company’s legal representative where so provided in the company’s charter.
From a governance perspective, the Director or General Director exercises the residual management powers of the company, namely those that are not reserved by law or by the company’s charter to the General Meeting of Shareholders or the Board of Directors.
In practice, Boards of Directors often attempt to limit the authority of the Director or General Director by imposing restrictions in appointment decisions or internal regulations. While such internal limitations may govern the relationship between the company and its management, they may not necessarily be enforceable against third parties, particularly banks, business counterparties or other external stakeholders. This risk is especially significant for non-public joint stock companies, where corporate information is generally not subject to comprehensive or mandatory public disclosure.
Conversely, routinely delegating the Board’s statutory powers to the Director or General Director is also inadvisable. As discussed above in relation to the delegation of authority by the General Meeting of Shareholders, statutory powers allocated to a particular corporate body should not be transferred on a continuing basis unless expressly permitted by law.
The 2020 Law on Enterprises also prescribes statutory qualifications and eligibility requirements for the appointment of a Director or General Director. Appointing an individual who fails to satisfy these legal requirements may expose the company to administrative sanctions.
Conclusion
A clear allocation of authority among the General Meeting of Shareholders, the Board of Directors and the Director or General Director is fundamental to the effective governance of a non-public joint stock company. Clearly defining the respective powers and responsibilities of these corporate bodies promotes sound management, reduces the risk of internal disputes and helps minimise the possibility that transactions with third parties may subsequently be challenged on the grounds that they were entered into without proper corporate authority.
To achieve these objectives, companies should periodically review their charter and establish internal governance rules that are proportionate to their size, business objectives and ownership structure. Equally important is ensuring that these governance documents are implemented consistently in day-to-day corporate management rather than serving merely as formal compliance documents.
Disclaimer
This article is intended solely to provide general information on the governance structure of non-public joint stock companies under Vietnamese law. It does not constitute legal advice and should not be relied upon as legal advice for any specific transaction or factual circumstance.
The views expressed in this article are those of the author and do not necessarily represent the legal opinion of BFSC Law LLC with respect to any particular matter. Readers are encouraged to obtain independent legal advice before taking or refraining from taking any action based on the information contained in this publication.
Author
Phan Quang Chung
Managing Partner
BFSC Law LLC – Hanoi Office
Email: [email protected]
Tel: +84 (24) 7108 2688 (Ext. 102)