Regulations on the Supervisory Board in joint stock companies under Vietnamese law

Does a Supervisory Board have to be established in the organizational structure of a joint stock company? How is the Control Board regulated? To become a Controller in the Supervisory Board, what standards and conditions must be met?

1. How is the Supervisory Board regulated?

According to Article 168 of the Law on Enterprises 2020, the Supervisory Board is regulated as follows:

“Article 168. Supervisory Board

1. The Supervisory Board has from 03 to 05 Supervisors. The term of office of Supervisors does not exceed 05 years and can be re-elected with an unlimited number of terms.

2. The Head of the Supervisory Board is elected from among the Supervisors; the rights and obligations of the Head of the Supervisory Board are prescribed by the Company’s Charter. More than half of the Supervisory Board’s Head must have a university degree or higher in one of the following majors: economics, finance, accounting, auditing. law, business administration or majors related to the business activities of the enterprise, unless the Company Charter stipulates other higher standards.

3. In case the Controller has the same term ending but the new term Controller has not been elected, the expired Controller will continue to exercise the rights and obligations until the new term Controller is elected and takes office.”

Accordingly, the Supervisory Board has from 03 to 05 Supervisors. The term of office of the Controller shall not exceed 05 years and may be re-elected for an unlimited number of terms. The Head of the Supervisory Board is elected by the Supervisory Board from among the Supervisors; Election, dismissal, dismissal according to the majority principle. The rights and obligations of the Head of the Supervisory Board are prescribed by the Company’s Charter. The Supervisory Board must have more than half of the Supervisors permanently residing in Vietnam. The Head of the Supervisory Board must have a university degree or higher in one of the following majors: economics, finance, accounting, auditing, law, business administration or a major related to the business activities of the enterprise, unless the company charter stipulates other higher standards.

2. What standards and conditions must be met to become a Controller?

According to Article 169 of the Law on Enterprises 2020, the standards and conditions of Controllers are stipulated as follows:

– Controllers must have the following standards and conditions:

+ Not subject to the provisions of Clause 2, Article 17 of this Law;

+ Be trained in one of the majors in economics, finance, accounting, auditing, law, business administration or a major suitable to the business activities of the enterprise;

+ Not being a family member of a member of the Board of Directors, Director or General Director and other managers;

+ Not a company manager; not necessarily a shareholder or employee of the company, unless otherwise stipulated in the company charter;

+ Other standards and conditions according to other relevant laws and company charter.

– In addition to the standards and conditions specified in Clause 1 of this Article, Controllers of public companies and state-owned enterprises as prescribed in Point b, Clause 1, Article 88 of this Law must not be a person related to the family of the business manager of the company and parent company; representative of the capital portion of the enterprise, representative of the state capital portion at the parent company and at the company.

3. Is it mandatory to establish a Supervisory Board in the organizational structure of a joint stock company?

According to Article 137 of the Law on Enterprises 2020, regulations on the organizational and management structure of joint stock companies are as follows:

“Article 137. Organizational structure and management of joint stock companies

1. Unless otherwise prescribed by securities laws, a joint stock company has the right to choose a management organization and operate according to one of the following two models:

a) General Meeting of Shareholders, Board of Directors, Board of Supervisors and Director or General Director. In case a joint stock company has less than 11 shareholders and institutional shareholders own less than 50% of the company’s total shares, it is not required to have a Supervisory Board;

b) General Meeting of Shareholders, Board of Directors and Director or General Director. In this case, at least 20% of the members of the Board of Directors must be independent members and there must be an Audit Committee under the Board of Directors. The organizational structure, functions, and tasks of the Audit Committee are specified in the Company Charter or the operating regulations of the Audit Committee issued by the Board of Directors.

2. In case the company has only one legal representative, the Chairman of the Board of Directors or the Director or General Director is the legal representative of the company. In case there is no regulation in the Charter, the Chairman of the Board of Directors is the legal representative of the company. In case the company has more than one legal representative, the Chairman of the Board of Directors and the Director or General Director are naturally the legal representatives of the company.”

Accordingly, unless otherwise stipulated by the law on securities, a joint stock company has the right to choose to organize management and operations according to one of the following two models:

+ General Meeting of Shareholders, Board of Directors, Board of Directors Control and Director or General Director. In case a joint stock company has less than 11 shareholders and institutional shareholders own less than 50% of the total shares of the company, it is not required to have a Control Board;

+ General Meeting of Shareholders, Board of Directors and Director or General Director. The organizational structure, functions, and tasks of the Audit Committee are specified in the Company’s Charter or the operating regulations of the Audit Committee issued by the Board of Directors.