Issue 021021 – The election of titles in joint-stock companies

Dear Valued Clients, 

After the establishment, it is vital for businesses to quickly build a key personnel framework. However, at present, many businesses are still confused about the application of legal provisions related to the election of titles in the company. Understanding this, ENT Law LLC would like to send to our valued clients this Legal Article on the procedure for election of titles of the joint-stock company after its establishment. Within the scope of this article, we would like to mention this procedure in non-state joint-stock companies.

Overview of election of titles in joint-stock companies

Election of titles in a joint-stock company is the process by which specialized agencies in a joint-stock company (including the General Meeting of Shareholders, the Board of Directors, the Supervisory Board) elect individuals to hold important positions in the company.

Some important titles in a joint-stock company include:

• • Chairman of the Board of Directors;
  • Director / General Director;
  • Head of the Supervisory Board[1].

These positions need to meet certain criteria and conditions before being elected or appointed. Criteria and conditions for specific titles are stated as follows

1.  Criteria and conditions for the Chairman of the Board of Directors

The Chairman of the Board of Directors needs to meet the conditions to be a member of the Board of Directors. Article 155.1 of the Law on Enterprise 2020 provides:

Members of the Board of Directors must meet the following criteria and conditions:

• • Not subject to the provision of Article 17.2 of the Law on Enterprises[2];
  • Has professional qualifications and experience of business administration in the company’s business lines and not necessarily is a shareholder of the company, unless otherwise prescribed by the company’s Charter;
  • A person may hold the position of member of the Board of Directors of more than one company.

2.  Criteria and conditions for the Director/General Director

a)  Director/General Director is a member of the Board of Directors

In this case, the Director/General Director needs to meet the conditions for being a member of the Board of Directors. These criteria and conditions have been presented by ENT in Section [a] of [Overview of the meeting to elect titles in a joint-stock company].

b)  Director/General Director is not a member of the Board of Directors

In case the company hires another person (not a member of the Board of Directors) to be the Director/General Director, currently, the Law on Enterprises does not stipulate the conditions and criteria for this case. Therefore, the Director/General Director needs to meet the criteria according to the company’s Charter (if any).

3.  Criteria and conditions for the Head of the Supervisory Board

The Head of the Supervisory Board needs to meet the conditions to be a Supervisor. Article 169.1 of the Law on Enterprise 2020 provides as follows:

A Supervisor shall satisfy the following criteria and requirements

• • Not subject to the provision of Article 17.2 of the Law on Enterprise 2020;
  • Majored in economics, finance, accounting, audit, law, business administration or a major that is relevant to the enterprise’s business operation;
  • Not a relative of any of the members of the Board of Directors, Director/General Director and other executives;
  • Not the company’s executive and not necessarily is a shareholder or employee of the company unless otherwise prescribed by the company’s Charter;
  • Other criteria and requirements are satisfied as prescribed by law and the company’s charter.

In the following section of this Legal Article, we would point out the process of electing the above positions in a non-state joint stock company.

Procedure for electing Chairman of the Board of Directors and Head of the Supervisory Board

1.  The General Meeting of Shareholders elects members of the Board of Directors and Supervisors

After establishing, the enterprise needs to elect members of the Board of Directors and Supervisors. From which, these members elect the Chairman of the Board of Directors and the Head of the Supervisory Board[3]. The General Meeting of Shareholders is the body that elects members of the Board of Directors and Supervisors in the form of voting[4].

The election of members of the Board of Directors and Supervisors would be done at the General Meeting of Shareholders. The General Meeting of Shareholders shall issue and pass the Resolution of the General Meeting of Shareholders at the meeting. Those who are elected officially become members of the Board of Directors or the Supervisory Board.

In addition, the principle of selecting members based on the number of votes is also stipulated in Article 148.3 of the Law on Enterprise 2020. Specifically, unless otherwise provided for in the company’s Charter, the winner is determined by the number of votes counted from high to low, starting from the candidate with the highest number of votes until the number of members specified in the company’s charter is reached. In case there are 02 or more candidates achieving the same number of votes for the last member of the Board of Directors, a re-election would be conducted among the candidates with the same number of votes or selected according to the criteria of the Board of Directors. specified in the election regulations or the company’s Charter.

2.  The Board of Directors elects the Chairman of the Board of Directors; The Supervisory Board elects the Head of the Supervisory Board

According to Article 157.1 of the Law on Enterprise 2020, “The Chairman of the Board of Directors is elected at the first meeting of the Board of Directors within 07 working days from the end of the election of that Board of Directors”. In other words, within 07 days after the General Meeting of Shareholders elects the members of the Board of Directors, the Chairman of the Board of Directors will be elected by the members of the Board of Directors at the first meeting.

Similar to the General Meeting of Shareholders, the Board of Directors also passes resolutions and decisions by voting at the meeting, collecting opinions in writing or in other forms prescribed by the company’s Charter. Each member of the Board of Directors has one vote.

Regarding the election of the Head of the Supervisory Board, Article 168.2 of the Enterprise Law 2020 stipulates: “The Head of the Supervisory Board is elected by the Supervisory Board from among the Supervisors; election and removal from office on the principle of majority […]”.

Thus, it can be seen that the two titles Chairman of the Board of Directors and Head of the Supervisory Board have certain similarities. These two positions are elected by specialized agencies in joint stock companies. The members of these bodies – who elect the above positions – are selected by the General Meeting of Shareholders. This shows that the General Meeting of Shareholders is the leading decision-making body in a joint-stock company.

Procedure for appointment of Director / General Director of a joint-stock company

The Director/General Director is appointed by the Board of Directors[5]. Through the meeting, the Board of Directors will make an appointment decision for this position.

Unlike the Chairman of the Board of Directors or the Head of the Supervisory Board, the title of Director / General Director is not necessarily a member of a specialized agency in the company or a shareholder of the company. This allows the company to outsource the right people to run its business.

[1] For a joint-stock company with 11 or more shareholders or organizational shareholders of the company owning 50% or more of the total shares of the company (Article 137.1 of the Law on Enterprise 2020).

[2] Not belonging to the following subjects who do not have the right to establish and manage enterprises in Vietnam:

“a) State authorities, People’s armed forces using state-owned assets to establish enterprises to serve their own interests;

b) Officials and public employees defined by the Law on Officials and the Law on Public Employees;

c) Commissioned officers, non-commissioned officers, career military personnel, military workers and public employees in agencies and units of Vietnam People’s Army; commissioned officers, non-commissioned officers and police workers in police authorities and units, except for those designated and authorized representatives to manage state-owned stakes in enterprises or to manage state-owned enterprises;

d) Executive officers and managers of state-owned enterprises prescribed in Point a Clause 1 Article 88 of this Law, except those who are designated as authorized representatives to manage state-owned stakes in other enterprises;

đ) Minors; people with limited legal capacity; incapacitated people; people having difficulties controlling their behaviors; organizations that are not juridical persons;

e) People who are facing criminal prosecution, kept in temporary detention, serving an imprisonment sentence, serving an administrative penalty in a correctional institution or rehabilitation center, has limited legal capacity or is incapacitated, is not able to control his/her own behaviors, is banned by the court from holding certain positions or doing certain works; other cases prescribed by the Law on Bankruptcy and the Anti-corruption Law.

If requested by the business registration authority, the applicant shall submit the judicial records;

g) Juridical persons that are banned from business operation or banned from certain fields as prescribed by the Criminal Code”.

[3] Article 156.1 Law on Enterprise 2020: “The Chairman of the Board of Directors is elected, relieved of duty and dismissed from among the members of the Board of Directors by the Board of Directors”.

Article 168.2 Law on Enterprise 2020: “The Head of the Supervisory Board is elected by the Supervisory Board from among the Supervisors […]”.

[4] Article 147.2(d) Law on Enterprises 2020: “Unless the company’s Charter provides otherwise, the resolution of the General Meeting of Shareholders on the following issues must be passed by voting at the General Meeting of Shareholders:

[…]

d) Elect, dismiss and remove members of the Board of Directors and Supervisory Board

[…]“.

[5] Article 162.1 Enterprise Law 2020: “The Board of Directors appoints one member of the Board of Directors or hires another person to act as the Director or General Director”.

The full version of this Legal Aritcle can be found here.