Good corporate governance assures rapid access to information and smooth communication among shareholders/members in the company, which leads to better business results and supports the organization’s sustainability. In that sense, ensuring compliance with the internal corporate documents of the company is vital for corporate governance efficiency. Common internal documents of companies include company charter; internal management regulations; shareholders’/members’ agreement, joint venture agreement, investment agreement (Agreements), share ownership/capital contribution certificate, registry of shareholders/members, meeting minutes, and resolutions/decisions.
This executive brief will help business leaders, as well as shareholders, members, and potential investors understand the notable points to ensure the efficiency of corporate governance in terms of drafting and compliance with internal corporate documents.
Charter is a critical document and also a must-have in the application dossier for the establishment of any company. The charter will set out constitutional information of the company, such as name, address, business lines, charter capital, rights and obligations of shareholder(s)/member(s) and legal representative(s), organizational structure, rules for settlement of internal disputes. As required by laws, companies must retain the charter and its amendment(s) at the head office or other places as prescribed by the charter.
Under Article 24 of the 2020 Law on Enterprises, the charter must be duly signed by general partners (for partnership), the company’s individual owner or legal representative of the company’s organizational owner (for single-member limited liability company), individual members and legal/authorized representative of organizational members (for multi-member limited liability company), and individual founding shareholders and legal/authorized representative of organizational founding shareholders (for joint stock company). Once the charter is revised, the charter must be signed by the chairman of the members’ council (for partnership), the company’s individual owner or legal representative of the company’s organizational owner (for single-member limited liability company), and the legal representative (for multi-member limited liability company and joint stock company).
The laws specify that the charter and its amendment(s) be updated in accordance with the applicable laws and status of the company (such as head office address, number of each type of shares, and the legal representative’s information). However, companies are not required to notify or register with the competent authority about changes in the charter’s contents (except in some instances such as charter capital adjustment or change of the legal representative). To our experience, in practice, some companies frequently fail to comply with this retention obligation and to update the charter’s contents. These non-compliances will adversely affect the corporate governance efficiency of the company, as they burden the current and especially new shareholders/members with gaining thorough knowledge about the company’s corporate governance status.
Shareholders’ Agreement, Members’ Agreement, and Joint Venture Agreement
The Agreements are not laid down and required in the Vietnamese laws on enterprises. However, such Agreements are commonly drafted and entered into in practice, especially in foreign-invested companies. These Agreements are intended to ensure that shareholders/members are treated fairly, and their rights are protected. They not only contain agreements among shareholders/members on the establishment and management of the company but also provide the undertakings among the shareholders/members relating to re-organization of the company or the share/capital contribution transfer, such as right of first refusal, tag-along right, non-transfer commitment, the fair and legitimate pricing of shares/capital contribution (particularly when sold), what outside parties may become future shareholders/members. They can also provide safeguards for minority positions by identifying certain ‘reserved matters’ which need unanimous approvals of the shareholders/members or which require more than a simple majority.
Once there are potentially new shareholders/members who want to invest their equity in the company, the Agreements will also need to be entered into by these shareholders/members and any condition imposed on these investors to effect the proposed transaction must be satisfied (for instance, written consents of all shareholders/members prior to the share/capital contribution transfer, the principle to determine transfer price, or tag-along rights, etc.).
Other Internal Corporate Documents
In addition to the documents described above, the company must prepare and retain other internal corporate documents, including share/capital contribution certificate; registry of shareholders/members; meeting minutes and resolutions/decisions of the competent body of the company (such as the general meeting of shareholders, board of management, members’ council). These documents must reflect full and correct information as required by the 2020 Law on Enterprises. For example, under Articles 47.5 and 47.6 of the 2020 Law on Enterprises, in multi-member limited liability companies, when the members fully contribute their capital portion, the company must issue the capital contribution certificates to such members, which record, among others, charter capital of the company, the member’s capital contribution and capital percentage, number and issuance date, signature of the company’s legal representative.
Particularly for the registry of shareholders/members, under the laws, the share/capital contribution purchasers will officially become the shareholders/members of the company when they are recorded in this registry. In addition, for recognition of the ownership of the share/capital contribution, the companies are obliged to issue the share ownership/capital contribution certificate to their shareholders/members. Therefore, the share ownership/capital contribution certificate and registry of shareholders/members are the most transparent documents to prove the share/capital contribution ownership of shareholders/members in the company. However, in practice, these documents are usually not well prepared, retained, and updated by the companies. These non-compliances may lead to administrative sanctions imposed on the companies and affect the rights of shareholders/members, especially in case of disputes and M&A transactions of the company. Therefore, the company must constantly ensure the information stated in such documents is consistent with the company’s public information (such as information of current members or founding shareholders).
Furthermore, the company should have an internal control team to carry out periodic audits into its transactions and dealings. Under the laws and internal corporate documents, some transactions and dealings of the company are subject to the prior approvals of its competent body (such as the general meeting of shareholders, board of management, or members’ council). For example, with respect to single-member limited liability companies, contracts and transactions of the company entered into with their related parties must be approved beforehand by the members’ council/company owner, (general) director, and inspectors under Article 86 of the 2020 Law on Enterprises. Other corporate changes may also be subject to prior approvals from the management level of the company, such as the establishment of a subsidiary or the purchase/sale of valuable assets. These layers of approval are clearly set out in 2020 Law on Enterprises and the company’s internal corporate documents (e.g., company charter, shareholders’/members’ agreement). Such approvals will be recorded in the relevant meeting minutes and resolutions/decisions, so periodic audits over such documents are crucial to ensure the company’s compliance with the laws on enterprises and internal corporate documents of the company.
If you have any questions or discuss about corporate governance for your company in Vietnam, our experienced Corporate Counsels lawyers are always available at firstname.lastname@example.org