Vietnam: Is a joint stock company required to establish a Board of Controllers? What are the rights of the Board of Controllers of joint-stock companies?
Is a joint stock company in Vietnam required to establish a Board of Controllers?
The Board of Controllers is an organization established by the Board of Directors of the company. The Board of Controllers is an independent body in a joint-stock company.
Duties and functions of the Board of Controllers in a joint-stock company are to examine and supervise the legitimacy, accuracy and truthfulness in the management and administration of business activities, recording accounting books and reports of company's finances.
Because the functions and duties of the Board of Controllers are to examine and supervise the legality, accuracy and honesty in the management and administration of business activities, to record accounting books and financial statements of the company, therefore, the nature of the Board of Controllers is to ensure the transparency and correctness in the operation of the joint stock company.
According to the provisions of Article 137 of the Law on Enterprise 2020, specifically as follows:
"Article 137. Organizational structure of a joint stock company
1. Unless otherwise prescribed by securities laws, a joint stock company may choose one of the following models:
a) A joint stock company with the GMS, Board of Directors, Board of Controllers and Director/General Director. If the joint stock company has fewer than 11 shareholders and the shareholders that are organizations hold less than 50% of the company’s total shares, a Board of Controllers is not mandatory;
b) A joint stock company with the GMS, Board of Directors and Director/General Director. In this case, at least 20% of the members of the Board of Directors shall be independent members and there has to be an audit committee affiliated to the Board of Directors. The organizational structure, functions and duties of the audit committee shall be specified in the company's charter or the audit committee’s operating regulations promulgated by the Board of Directors.
2. If the company has only one legal representative, the President of the Board of Directors or the Director/General Director shall be the legal representative. The President of the Board of Directors shall be the company’s legal representative unless otherwise prescribed by the company's charter. If the company has more than one legal representative, the President of the Board of Directors and the Director/General Director shall be the company’s legal representatives.
Accordingly, a joint stock company has the right to choose an organization to manage and operate under one of two specific models as follows:
* Model 1:
- GMS;
- Board of Directors;
- Board of Controllers and Director/General Director.
In case a joint-stock company has less than 11 shareholders and the shareholders are organizations holding less than 50% of the total shares of the company, it is not required to have a Board of Controllers;
* Model 2:
- GMS;
- Board of Directors and Director/General Director.
In this case, at least 20% of the members of the Board of Directors must be independent members and have an Audit Committee under the Board of Directors.
Accordingly, the Board of Controllers may or may not be in a joint-stock company.
Vietnam: Is a joint stock company required to establish a Board of Controllers? What are the rights of the Board of Controllers of joint-stock companies?
What are the rights and obligations of the Board of Controllers in Vietnam?
Article 170 of the Law on Enterprise 2020 specifically provides as follows:
"Article 170. Rights and obligations of the Board of Controllers
1. Supervise the Board of Directors and the Director/General Director managing the company.
2. Inspect the rationality, legitimacy, truthfulness and prudency in business administration; systematic organization, uniformity and appropriateness of accounting works, statistics and preparation of financial statements.
3. Validate the adequacy, legitimacy and truthfulness of the income statements, annual and biannual financial statements, reports on performance of the Board of Directors; submit validation reports at the annual GMS. Review contracts and transactions with related persons subject to approval by the Board of Directors or the GMS and offer recommendations.
4. Review, inspect and evaluate the effectiveness of the internal control, internal audit, risk management and early warning systems of the company.
5. Inspect accounting books, accounting records, other documents of the company, the company’s administration where necessary, under resolutions of the GMS or at the request of the shareholder or group of shareholders specified in Clause 2 Article 115 of this Law.
6. When requested by the shareholder or group of shareholders specified in Clause 2 Article 115 of this Law, the Board of Controllers shall carry out an inspection within 07 working days from the day on which the request is received. Within 15 days after the end of the inspection, the Board of Controllers shall submit a report to the Board of Directors or the requesting shareholder or group of shareholders. The inspection must not obstruct normal operation of the Board of Directors or interrupt the company’s business operation.
7. Propose changes or improvements to the company’s organizational structure and administration to the Board of Directors or the GMS.
8. Promptly submit a written notification to the Board of Directors whenever a member of the Board of Directors, the Director/General Director is found to be violating Article 165 of this law, request the violator to stop the violations and implement remedial measures.
9. Participate in and discuss at the GMS, meetings of the Board of Directors and other meetings of the company.
10. Employ independent counsels and internal audit unit of the company to perform their tasks.
11. The Board of Controllers may discuss with the Board of Directors before submitting reports and proposals to the GMS.
12. Other rights and obligations prescribed by this Law, the company's charter and resolution of the GMS."
What is the role of the Board of Controllers in a joint-stock company in Vietnam?
Also based on Article 170 of the Enterprise Law 2022, the Board of Controllers has two main roles in a joint-stock company as follows:
- Supervising the internal administration and business activities of the company;
- Reviewing and appraising the company's accounting and financial statements.
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