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[what you need to know] Duties, Obligations And Liabilities Of Members Of The BoD of JS Company

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.


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.


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") and its implementing regulations govern the establishment, organization, and operation of all companies, except for companies involving matters in which industry-specific rules apply. The EL describes the basic rights, duties, obligations, and liabilities of Board Members.

JSCs include private joint-stock companies and public joint-stock companies. A public joint stock company which may or may not be listed on a stock exchange is governed by both the EL and the Law on Securities. Decree 1553 provides specific regulations on tender offers, foreign ownership limits, corporate governance, and public company disclosure obligations. Circular 1164sets out a model charter and specifies requirements that a public JSC must adapt. Matters that are not addressed in Decree 155 and Circular 116 are regulated by the EL.

Industry-specific JSCs (securities firms, fund management companies, joint stock commercial banks, etc.) are established, organized, and governed in accordance with laws and rules specific to that industry. For example joint stock commercial banks, whether private or public, must be incorporated, organized, and operated under the Law on Credit Institutions. Decree 865 provides a pro forma charter for joint stock commercial banks. In such case, the EL continues to apply to matters involving the establishment, organization, and operation of a joint stock commercial bank if those matters are not addressed in the Law on Credit Institutions, Decree 86 and in related implementing documents.


What are the statutory duties, obligations, and liabilities of a Board Member of a generic JSC? Some duties and obligations are quite objective, and some are more subjective and require judgement.

3.1 The Board of a Private JSC

The duty and obligations of private JSCs are governed by the EL. The Board of a private JSC consists of 3 to 11 Board Members. Each Board Member can serve for a term of up to five years and can be re-elected.

For a one-tier structured JVC, at least 20% of the members of the BOD must be Independent Members who do not have a material or pecuniary relationship with the company or with related persons. Independent Members are responsible to supervise and organize the supervision of the management and operation of the company to ensure that the decisions made by the Board are impartial and objective. By maintaining transparency in the operation of a JVC and preventing self-interest involving transactions which may cause detriment to the company, Independent Members help to improve the overall performance of the Board and enhance the quality of a JVC's governance.

The EL does not distinguish between the general obligations that apply to Board Members and those that apply to an EO. Under clause 24, Article 4 of the EL, Board Members and EOs are generally considered to be persons who manage a JSC. As such, each Board Member is obliged to:

exercise rights and perform her duties in accordance with (i) the EL and related legislation, (ii) the charter of the company, and (iii) resolutions of the GCS. If the Board makes a decision that (i) is contrary to law or is contrary to a decision of the GCS or the JSC's charter, and (ii) the decision causes a loss to the JSC, the Board Members who approved the decision are personally and jointly liable. The JSC is entitled to recover compensation for damages. In order to individualize the liability of Board Members, the EL provides that Board Members who oppose a wrongful decision are not subject to liability. The liability of an abstainer (ie, a Board Member who casts a "blank" vote) is not specified. While the matter of abstention is an interesting one, the essential fact is that Board Members are accountable for the consequences of votes that are contrary to law and the charter of the company.

exercise her powers and duties honestly to the best of her ability, and in the best interests of the company and shareholders. This obligation may not always be easy to understand and apply. Particularly when, for example, the interests of the JSC and those of a shareholder (especially a majority shareholder) do not coincide. However, the law refers to them together and does not make any distinction.

be loyal to the interests of the company and the shareholders; a Board Member may not use information, secrets, business opportunities and the assets of the company, nor abuse her position and power, for her own personal benefit or interest or for the benefit of other entities or individuals.

notify the JSC timely, fully, and accurately of those companies in which she and her related persons6 jointly own or have a controlling ownership interest.7 Such a disclosure must be displayed at the head office and branches of the JSC.

A Board Member also has to disclose her related interests within 7 business days from the date on which any such interest arises. The term "related interests" generally include either (i) the Board Member's shareholding or capital ownership, no matter what percentage, in another company or (ii) a shareholding or capital ownership of more than 35% of the charter capital of a company which the related persons of the Board Member jointly or individually hold. Such disclosure must be posted and recorded at the JSC's head office. Any modification in the information disclosed must be notified to the company within 7 business days. The GCS must be notified of the disclosure at its annual meeting.

In addition, a Board Member who, on her or somebody else's behalf, conducts any activity, irrespective of its form, which is in the same line of business as the line of the company in which she serves as a Board Member, is obliged to explain the nature of the activity to the Board and the Board of Supervisors. Only where a majority of the remaining Board Members approve can the activity be carried out. If the activity is performed without the approval of the Board, all income gained will belong to the JSC.

By requiring Board Members and EOs to disclose and obtain Board approval, the EL has created a mechanism that seeks to prevent conflicts of interest.

The above four basic obligations apply equally to all Board Members, whether of Vietnamese or foreign nationality, and whether or not they are residents of Vietnam.

3.2 The Board of a Public JSC

A public JSC is governed according to the rules of the EL and those provided for under the Law on Securities. Decree 155 and Circular 1168 adopt both the EL and the Law on Securities and apply specifically to the governance of a public JSC. As such, the rules under these legal documents reflect both the EL and, to a lesser extent, the Law on Securities. Generally, the rules that apply to the Board of a public JSC are more strict and more detailed than those that apply to the Board of an unlisted public JVC.

The Board of a public JSC consists of 5 to 11 members, at least one-third of whom must be non-executive members. The Board must appoint at least one person to be in charge of corporate governance to support the corporate governance of the JVC.

In an unlisted public JVC, there must be a minimum of one-fifth of Board members who are Independent Members (ie, they are neither EOs nor substantial shareholders9). In case the Board of Directors of an unlisted public JVC following the above model contains fewer than 5 Board members, the JVC must ensure that there is one member of the Board of Directors who is Independent.

In a listed public JVC, the number of Independent Board members whose vote is required is as follows: (i) at least one independent member, if 3-5 total members; (ii) at least 2 in case there are 6 to 8 members; and (iii) at least 3 independent members, in the case of 9 to 11 members.

A Board member must report to the Board on transactions that are entered into between: (i) (a) the public company, its subsidiaries, or companies having 50% or more of their capital controlled by such public company, and (b) such Board member and their related persons; and (ii) (a) the public company, and (b) companies in which such Board member has held a position of founder or company manager within the 3 years immediately before the transaction.

A Board Member of a Public JSC cannot concurrently hold Board seats in more than 5 other companies (whether private or public)). A JSC's Chairman of the Board cannot be a Director (or General Director) of a public JVC.

For public JVCs that follow a one-tier board structure under article 137.1.b (EL), the Audit Committee (i) must have at least 2 members, with the Chairman being an independent Board member, and other members being non-executive Board members; and (ii) must have its own Operation Rules approved by the Board.

In addition to mandatory rules provided in the laws and regulations, the State Securities Commission (SSC), with support from the International Finance Corporation, issued the Vietnam Corporate Governance Code of Best Practices for public companies (the CG Code) in 2019. This Code of Best Practices recommends standards that go beyond the minimum requirements imposed by laws and regulations. The 2015 G20/OECD Principles of Corporate Governance and the 2017 ASEAN Corporate Governance Scorecard have been used as principal reference materials in developing the CG Code. Although the CG Code is not mandatory to JVCs, it is considered an important milestone and a marker in Vietnam's development of a corporate governance framework.


Can a public JSC protect its Board Members? The standard charter of a public JSC issued under Circular 116 allows it to compensate its current or former Board Members for a claim, a suit or a legal proceeding lodged against them. Compensation can be made regardless of whether the claim, the lawsuit, or the legal proceeding is civil or administrative.

The protection can be provided within certain parameters. Compensation can cover all costs and expenses such as lawyer's fees, court awards, penalties, and amounts payable that arise or are deemed reasonable. The conditions for compensation, among others, are that the Board Member have (i) acted honestly, prudently, diligently, professionally and in a manner that she believes to be in line with the interests, or not contrary to the best interests, of the JSC; (ii) acted in compliance with the law; and (iii) not breached her obligations. A detailed compensation policy is often shown in a JVC's charter.

A public JSC can also purchase liability insurance but liabilities that relate to a breach of law, or the charter of the company cannot be purchased.

The EL does not address the protection of the Board of a private JSC. There is no reason why a private JSC cannot adopt similar provisions.


What sanctions does the law impose for prohibited conduct? Several remedies are available:

Dismissal/Removal: The lightest form of sanction that can be imposed upon a Board Member who breaches or neglects her statutory obligations is dismissal, while removal is performed for those who fail to meet the criteria and conditions as prescribed in the EL or have their resignation letter accepted by the Board. This is accomplished by a decision of the GCS. Dismissal or removal does not preclude individual shareholders and/or the JSC from taking other action against the Board Member.

Administrative sanctions. Sanctions of an administrative nature are usually industry or sector-specific and are usually imposed by a related State body (eg, the State Bank of Vietnam, the State Securities Commission, etc.). They can only be imposed in case the Board10 (i) breaches a particular law or regulation, and (ii) the breach is subject to statutory administrative measures. Administrative sanctions do not apply to mismanagement of a JSC by the Board.

Civil liabilities. Under the Civil Code, the compensation that the company, or its shareholders, can seek from the Board's wrongful decision or a wrongful act of a Board Member (eg, breach of a statutory obligation) is an actual loss. To recover a loss, it must be proved that the Board Member or the Board as a whole is at fault.

To protect the legitimate rights and interests of shareholders against risks arising from decisions of a Board of Directors, a shareholder has the right to request the court to suspend implementation or to annul a Resolution or Decision if contrary to the law, resolution of the GCS, or the charter of the JVC.

Criminal liability. Criminal sanctions can be imposed on persons of authority11 and on commercial legal entities who act wrongfully. A JVC could be held criminally liable for a variety of offences. Commercial entities have penal liability when the offence satisfies the four following conditions: (i) offence is committed in the name of the commercial entity (ii) offence is committed in the interest of the commercial entities (iii) offence is committed with the guidance and approval of an executive of the commercial entity (iv) criminal statute of limitations has not expired. The offender can be subject to fines, business prohibition, and a ban on raising capital or performing certain activities in certain areas for from one to three years. A breach of civil obligations or administrative regulations can sometimes be sufficiently serious to subject the offender to criminal sanctions. The criteria to upgrade an act to criminal liability are not always clear. For example, "serious consequences" caused by a wrongful act can subject the offender to criminal liability (eg, the amounts lost are large, the offender took advantage of her position or power, the offender was guilty of gross negligence, etc.). Generally, and in practice, EOs are more likely to be subject to criminal sanctions than Board Members.


The EL allows a shareholder or a group of shareholders who have held more than 10% of the ordinary shares of a JSC to nominate a candidate to the Board. It is not uncommon for an institutional shareholder to nominate one or more of its employees. Upon meeting certain conditions, the nominee can be elected to the Board by a majority vote of the GCS. Such a nominee is not obliged to relinquish her employment with the institutional shareholder upon election even though it may be argued that such a person has a possible conflict of interest.

The EL mandates all Board Members (including a nominated member) to act in the best interests of the company and the shareholders as a whole. An employee is obliged to act according to her employer's instructions if the instructions are within the scope of her work and if they do not conflict with other rules. In performing her duties as a Board Member, presumably, an employee must carry out her employer's instructions as long as they are reasonably believed to be in, or not contrary to, the best interests of the company. Even so, it remains unclear, practically which entity should prevail in case of a conflict between the interests of an institutional shareholder (the employer) and those of the company of which she is a Board Member. In a legal sense, and in some cases, the Board Member/employee faces at least a theoretical dilemma. This dilemma is a subset of the dilemma faced in like cases by the Board Member nominated by any shareholder.


We are aware of no case in which a JSC or its shareholders have sought compensation from a Board Member. The local litigation culture tends toward seeking a court order to render a resolution of the Board invalid and thus reduce or prevent loss from occurring. There is always the danger that the tools to hold Board Members accountable could be abused and will undermine the good practices they were intended to further. Frivolous or vindictive actions can be a threat to a Board otherwise seeking to act prudently and carefully. Even though there is a risk of abuse, Vietnamese law now provides a valuable mechanism to permit shareholders and, in some cases, third parties, to require the Board to act responsibly.


1. The law refers to "contributed capital", not "committed capital". A shareholder will be liable up to its contributed capital (ie, paid-up shares). By law, founding shareholders have to subscribe to at least 20% of the JSC's shares and must pay in full all of their subscribed shares within 90 days from the issuance of the company's Business Registration Certificate. However, and despite the use of the term "contributed capital", pending payment of founding shareholders' subscribed shares, a shareholder will be liable for her subscribed but unpaid shares.

2. EOs include the director (or general director)/CEO, CFO, CIO, the chief accountant and other staff who hold important managerial positions.

3. Decree No. 155/2020/ND-CP dated December 31, 2020, of the Government on detailing and guiding the implementation of a number of articles of the Law on Securities.

4. Circular No. 116/2020/TT-BTC dated December 31, 2020, of the Ministry of Finance, guiding a number of articles on public company governance as prescribed in the Government's Decree No. 155/2020/ND-CP dated December 31, 2020, on detailing and guiding the implementation of a number of articles of the Law on Securities

5. Decree No. 86/2019/ND-CP dated November 14, 2019, on prescribing legal capital of credit institutions and foreign bank branches.

6. Article 4.23 of the Enterprise Law 2020 lists out the related persons of a JVC.

7. There's no definition of "a controlling ownership interest".

8. Circular No. 116/2020/TT-BTC dated December 31, 2020, of the Ministry of Finance, guiding a number of articles on public company governance as prescribed in the Government's Decree No. 155/2020/ND-CP dated December 31, 2020, on detailing and guiding the implementation of a number of articles of the Law on Securities.

9. A substantial shareholder is one that holds, either directly or indirectly, at least 5% of the shares with voting rights.

10. Presumably, Board Members who opposed the wrongful decision are not subject to liability.

11. Under the Criminal Code, a person has authority by reason of assignment, election, contract, etc. irrespective of whether or not s/he is remunerated.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

Source: CCIPV / Lu Lam Uyen / Russin & Vecchi


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