The role of the Board of Directors ("Board") of a Vietnamese joint stock company ("JSC") is similar in many respects to that of the Board of Directors of a company incorporated under the laws of, say, the UK or the US.
The Board has a key governance role. However, as it does not manage the day-to-day affairs of the company, the duties, obligations and, most importantly, the liabilities of the Board are sometimes overlooked. It is important that each member of the Board ("Board Member") know her rights, powers, and obligations, and that she understands the consequences if her obligations are breached or if power is misused.
As the title suggests, this article looks at the duties and potential liabilities of a Board Member of a JSC. We will focus on the Board of both a private and public JSC. First, we discuss the general framework and make some introductory comments on JSCs. We will then discuss the duties, responsibilities, and liabilities of a Board Member. Some grey areas will also be addressed. Although industry-specific rules on corporate governance exist, this article does not focus on nuances in the governance of specific industries.
1. THE JSC AND ITS INTERNAL STRUCTURE
We start with a description of a JSC. In a JSC: (i) the charter capital is divided into shares, (ii) there are at least 3 shareholders (who can be either individuals or institutions), and (iii) the shareholders are only liable for the debts or other asset-related obligations up to their respective contributed1 capital, and (iv) the shareholders can freely transfer their shares (except where share transfer is restricted by law).
A JSC's internal structure consists of a General Council of Shareholders ("GCS"), a Board of Directors ("BOD") and perhaps a Supervisory Board ("SB"). A company can be either two-tier (a BOD and an SB) or one-tier (a BOD only). For a one-tier board, at least 20 per cent of the members of the BOD must be independent. Moreover, there must be an audit committee ("AC") (a sub-board committee) which is a specialized committee under the Board of Directors. It has a supervisory role over the Board and the Director (or General Director) in corporate matters and provides oversight of the financial reporting process, the audit process, and the JVC's system of internal controls.
The characteristics of a JVC's body are summarized as follows:
a General Council of Shareholders ("GCS"), which includes all shareholders with voting rights (ie, shareholders which hold ordinary shares); it is authorized to decide most corporate issues but is not involved in day-to-day issues.
a Board, which is not involved in the day-to-day management of the JSC. The JVC's management is provided by executive officers2 (EOs). The Board's role is more strategic. It establishes development strategies, annual business plans, the company's organizational structure, internal rules, etc; it appoints, supervises, and dismisses EOs. The Board makes decisions on the basis of a majority vote of Board Members in a quorate Board meeting, or by collecting Board Members' written opinions, or through other methods that may be provided in the charter. Each Board Member is entitled to one vote;
a Director (or General Director), who manages the day-to-day business of the JSC. She need not be either a Board Member or a shareholder. A Director can assume the role of Chairman of the Board unless the charter of the JSC provides otherwise; and
subject to the JVC's structure: a Supervisory Board (in a two-tier board structure) or Group of at least 20% of independent members of a BOD and an internal audit committee affiliated with the BOD (in a tie-board structure). There must be 3-5 SB members. An individual may be elected an independent member of a BOD of a JVC for no more than two consecutive terms. The establishment of an SB is not compulsory for a JSC with fewer than 11 individual shareholders, and with institutional shareholders which hold less than 50% of its shares.
2. APPLICABLE LAWS
Before we discuss the obligations and liabilities of Board Members, we think it is important to touch on key laws and regulations that affect JSCs. A JSC may be governed by more than one law. It is governed by the law under which it was incorporated, and it may also be governed by industry-specific regulations:
The 2020 Enterprise Law ("EL")